Sectional title buy-to-let property set to shine in months to come
Commercial property investors in the sectional title buy-to-let sector have reason to be optimistic in the coming months, say the experts.
Not only is demand for rental apartments continuing to increase across the country, but there is superior price growth in flats compared to houses.
In addition, Western Cape investors who own apartments on the first and second floors, and therefore do not have gardens to maintain, can expect less risk as the drought continues in the province.
According to property economist firm Rode & Associates, flat rents across South Africa grew at a yearly rate of 6.4% in the fourth quarter of last year, just outpacing building-cost inflation and comfortably beating consumer inflation of just under 5%.
Although it is difficult to read much into the figures of just one quarter, Rode & Associates economist Kobus Lamprecht says this was the first time rental growth accelerated from the previous quarter since early 2016.
Using statistics from FNB, he says: “The growth rate of flat rentals 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.”
A “definite growth” is being seen in the numbers of investors purchasing buy-to-let apartments instead of houses. Pieter Piek, head of sales at Just Invest in Cape Town, a division of Just Property, attributes this to the fact that apartments are normally cheaper and thus create less risk for investors.
Furthermore, maintenance of properties in sectional title blocks is usually undertaken by body corporates.
“With the ongoing drought in the Western Cape, investors also prefer to buy apartments on first and second floors to avoid upkeep of gardens on ground floors.”
Piek says with banking institutions’ loan to value higher on apartments than on building loans for free-standing houses, investors also have the opportunity to pay smaller deposits on apartments, allowing them to hold on to their capital and “rather use the banks’ money to make money”.
“This capital can also be used for more deposits and to help grow a property portfolio faster. For example, instead of paying a R200000 deposit on a free-standing house (plot and plan) of R1million, where the loan to value is 80%, the investor can purchase three or more apartments where the loan to value is 100%, even if it costs R1m an apartment,” he says.
Two areas in the Western Cape which have seen “exceptional rental incomes” are Parklands North and Paarl. Piek says that demand for buy-to-let apartments across the province will continue to increase as more people semigrate here. Furthermore, areas such as Parklands North and Table View give investors huge rental opportunities as more people move towards the Cape Town CBD.
The sectional title market is also the best bet for investors in the southern suburbs, says Lorraine Dellbridge, veteran rental specialist for Lew Geffen Sotheby’s International Realty in the southern suburbs, Noordhoek and False Bay.
“Good two and three-bedroom apartments or low maintenance townhouses with rents under R15000 will always be in demand, not only because they are more accessibly priced.
“People don’t want to pay for a place that can’t fully enjoy and with the water crisis, gardens and pools are no longer a joy.”
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.
Carl Nortje, managing director Rawson Developers, says the uptake of units in the company’s multi-unit residential complexes has been brisk for investors seeking rental income and those seeking to accommodate children at university.
“You need to follow the money to get a real view of what is stimulating residential sales in Cape Town.
“Our residential complexes are exactly what the market wants now – rising, stable rental returns for investors wanting to cover bonds, cheap and efficient access to organised transport for students and those commuting to work, and secure but beautiful indoor/outdoor living spaces with ample shared facilities and parking.”