Buy-to-let buying takes a back seat in S.Africa’s property market


“Credit is cheap at the moment, but it’s not just about the money. If we look at our estate agent survey, seven per cent of total buying is estimated to be buy-to-let buying. Back at the height of the boom in 2004 it was nearer to 30 per cent,” FNB household and property sector strategist John Loos told CNBC Africa.

“A lot of that was more of the speculative nature, [people] who are theoretically buying to let but actually just riding the capital growth trend – not necessarily looking at yield – to make a short term profit. [You had] a lot of unseasoned buy-to-let buyers at that time that often don’t even know what a yield is.”

Supply growth in the rental market continues to be slow as a result of South Africans’ preference to the primary market. Seasoned buy-to-let buyers however, continue to focus on the income stream and have managed to keep the buy-to-let market a float. 

Seven per cent of total home buying in South Africa in the third quarter of this year was for buy-to-let purposes.

There have however been a number of distressed sales in the past due to static house prices amid an increase in other costs.

Loos explained that for those that had bought property after the 2004 boom, when yields started becoming significantly compressed, continue to suffer today. This is as capital growth has been minimal since the 2008 global recession.

“Where a lot of losses came from, is that your tenants came under pressure in the recession, too. The tenant arrears increased quite substantially round about 2008. A lot of people think this is a passive income, they don’t realise that you’re dealing with tenants who often can go bad on you, too,” Loos added.

The national average property yield has been estimated at roughly 8.8 per cent, which is not highly attractive but still has high yield potential.

Inner city areas in Johannesburg are now a part of the upcoming property development trend, and a number of firms and individuals have begun purchasing property in the area for let purposes.

“At one stage, a few years ago, the progress was visible. Those who bought low-end properties in Hillbrow and Berea around 1999 to 2000, the yields are extremely high and some of those guys have really cashed in,” said Loos.