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Buy-to-let flats are a good buy

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With demand increasing and rents rising, investors can have high hopes

Demand for rental apartments continues to increase across the country, and this, in conjunction with superior price growth in comparison to houses, gives commercial property investors in the sectional title buy-to-let sector a reason to be optimistic through the coming months.

According to property economist firm Rode & Associates, flat rentals across South Africa grew at a yearly rate of 6.4% in the fourth quarter of last year, just outpacing building-cost inflation and beating consumer inflation of just under 5%.

Though it is difficult to read much into figures of just one quarter, Rode & Associates economist Kobus Lamprecht says this was the first time rental growth had accelerated from the previous quarter since early 2016.

Using statistics from FNB, he says: “The growth rate of flat rents also outpaced the growth in house prices. Nationally, house prices gradually accelerated throughout 2017, with nominal growth peaking at 4.9% in the fourth quarter, before slowing again in early 2018.”

Mirroring Rode & Associate’s statistics, Lightstone data also revealed that sectional title units outperformed freehold homes in house-price growth, with unit prices stimulated by high demand for security benefits and lower maintenance costs.

Apartments remain in demand and rental rates in some areas continue to rise so these are good bets for commercial property investors. Picture: Shutterstock

In Durban, the best rental returns on sectional title properties are being achieved in and around Gateway, the area known as Newtown Umhlanga. Mandy Testa, area specialist for Lew Geffen Sotheby’s International Realty in Durban North and Umhlanga, says prices here range from R1million to R3m, with lower, entry-level properties available from R500000 to R2m.

“The Berea, Morningside, Musgrave and Essenwood areas also offer attractive options with decent returns just below those being achieved in Newtown Umhlanga.”

Testa says sectional title schemes contained within estates like Mount Edgecombe, Kindlewood, Izinga, and new developments in and around Sibaya, are increasingly sought-after by those looking for long-term investments, especially if the property is intended for their retirement in future years.

For the short-term rental market, investors should look at Durban, Umhlanga, Umdloti and Ballito beachfront schemes that allow holiday letting as they offer “very good returns”.

Overall, she says, “investment buying has remained constant during the last few years, despite market fluctuations”.

Investment in Durban’s sectional title market for long-term rentals may not produce great results, says Pieter Piek, sales manager at Just Property. This is because low rental yield is being seen on most apartments selling for around R1million but only achieving monthly rentals of R6500 to R7000.

“As a holiday home or Airbnb, you could get between R400 and R800 a day, and up to R1200 a day in high season, for a R1m apartment. This could also be used as a holiday apartment for yourself.”

Piek says investors looking for sectional title properties in Durban should look at purchasing only in areas that will give them a higher-than-average capital growth.

“Purchasing an apartment with a sea view or an average size house in an estate would be a safer option.”

According to the latest Re/Max housing report, the current national median price of a sectional title unit is just under R1m. Although this price is a 2% drop from the last quarter of 2017, freehold home prices dropped by 7.8% over the same period.

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