The combination of steadily rising rentals and a lack of significant new residential development activity presents excellent opportunities for the prudent buy-to-let investor.
Aida CEO Young Carr says FNB statistics show that the percentage of sales to buy-to-let purchasers has fallen from about 25% in 2004 to 7%, and that this has put a lid on the supply of new rental stock.
“At the same time, though, the banks' very strict lending criteria are forcing more people who would like to buy a home to stay in the rental market instead, and demand is rising.”
“Indeed, there is already a shortage of rental units in many areas around the country and this is reflected in rising rentals.”
According to the latest available Statistics SA numbers, growth in residential rentals rose from 4,5% in June last year to 5,6% year on year in September, representing a complete turnaround from the deceleration of rentals that began in early 2009.
What is more, Carr says, is that the situation does not look set to change anytime soon, with the pressure being kept up by large numbers of potential homebuyers still constrained by a serious lack of affordability - or at least serious doubts about taking on any new financial commitments.
“This is due to a combination of factors, including still-high levels of household debt, job uncertainties, rising municipal tariffs and low salary and wage increases.”
Carr notes that FNB's latest survey of estate agents reveals a sharp increase in the percentage of agents that believe incomes are behind price levels. From a low of 43% for the second quarter of 2010, the percentage of agents stating that income levels were “far behind” house price levels rose to 57% in the fourth quarter.
Meanwhile, Statistics SA figures show that the value of building plans passed for new flats and townhouses - the home types usually favoured by first-time buyers - was 13,5% lower by the end of last year than in the same period of 2009, “meaning that there is going to be a serious lack of new building in this sector for several years to come”.
On other hand, it appears that the quality of tenants is getting better.
“According to the Tenant Profile Network, the percentage of tenants who are in good standing has risen to 81% from a low of 71% in the second quarter of 2009. In short, the signs are all positive now for buy-to-let investors who keep their heads and choose their rental properties carefully, and we are expecting increased activity in this sector of the market this year.” - I-Net Bridge