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You can live where you cannot afford to buy if you rent in the area you love and buy more cheaply elsewhere. By Bonny Fourie

Just because you cannot afford to buy the property you love, or in the area you love, does not mean you need to stay trapped in the rental market. You can still take your first steps on the property ladder without leaving the comfort of your rented home or giving up your lifestyle in your suburb of choice.

As long as you buy a property that others will want to rent, you can have the best of both worlds. Unfortunately, the number of people to have caught on to this mindset is low.

Richard Hardie, chief executive of Knight Frank South Africa, believes this will change as people realise they should look for a property they can afford, even if it is not where they want to live.

“What I say to people and it the same said to me by my parents, is: ‘You don’t actually have to buy where you live. You can buy property as an investment in another area that you can afford and that makes you money. At least you then have something for your retirement’.”

The number of people who cannot afford to buy a home, especially in places such as Cape Town, where wages are low and house prices high, is increasing, and a “high number” of people rent homes they love because they can afford the rents, but not the sales prices.

Hardie says the message “we really need to get across” to people, especially young people, is that they must focus less on what they are going to live in and more on what can work for them as an investment in later years. “It can even be a smaller property they can move into in their retirement.”

This method is an “excellent way” to get on to the property ladder, as long as people buy wisely, says Jill Lloyd, area specialist in Rondebosch and Lynfrae for Lew Geffen Sotheby’s International Realty.

These investor types are “starting to pop up again”, and they generally do not mind where the investment property is, as long as they can get a decent return. This means they can still live in the type of home and area they want to without losing out on the benefits associated with property ownership. 

Suburbs on the Atlantic seaboard and City Bowl are where many people love to live, but are forced to rent as they cannot afford to buy there, says Natalie Muller, Seeff rentals manager in these areas. However, many of them own property elsewhere.

“These areas are in high demand for the lifestyle and convenience, but the prices to buy are out of reach of most buyers. Generally speaking it costs about twice as much to buy compared to what you can rent for.”

About 52% of the properties in these areas are let, meaning a large number of residents cannot afford to buy. The “big advantage” is that they can enjoy the lifestyle without having to pay the high prices. Furthermore, those who own property elsewhere can still reap the rewards of continually increasing price growth and use the rental income to help pay the bond – and without compromising on where they want to live.


Many options if you are a smart buyer 

CHANCES Developments offer buyers great opportunities to buy for under R1million. Picture: Supplied

One of the main reasons why people rent in the suburbs of Rondebosch, Lynfrae and surrounding areas is so their children can attend “good schools” nearby, says Lew Geffen Sotheby International Realty’s Jill Lloyd.

But many own property elsewhere. “I have had people who have bought property in Milnerton or Blouberg which they let, and they rent a family home in Rondebosch. They then save like hell and buy when they can.”

Buyers who cannot afford Blouberg also have options, says Nancy Oeschger, rentals manager for Seeff Blouberg. Up-and-coming areas nearby include the Blouberg Village and Big Bay areas. The Sandown and Parklands North areas are also expanding.

“Increasingly we are seeing that the Blouberg/ Table View/Parklands area, once regarded as a bit downmarket, is now the alternative to the Atlantic seaboard. Wealthy buyers here pay R5 million to R25m for luxury homes with fabulous sea views.”

Closer to the city, areas that may not be considered the best now, but which Knight Frank’s Richard Hardie believes will one day be hotspots, are Woodstock, Observatory, Rosebank and Mowbray, Salt River and Milnerton.

“You can buy for just under R1m and developments are around R1.1m with no transfer duty.” Hardie advises those with limited budgets to look at Milnerton, where one and two-bedroom properties can be bought for just under R1m to R1.2m. They should also watch out for developers putting out projects at under R1m.

“There are a lot of new properties going up for sale where you don’t have to pay transfer duty because they are new builds.”

Tijgerhof and Sanddrift in the central suburbs also offer good potential for future returns, believes Helga Clemo, licensee for Seeff Century City. “Situated directly across from Century City, Tijgerhof offers many of the same benefits as Century City, but without the price tag.”

The suburb offers a mix of free-standing homes and apartments priced from R1.2m for a two-bed apartment and from R1.3m for a small three-bed house. A “good-sized” family house rises from R1.8m. “And with usable land running out in Century City, the demand will spill over into these areas.”

For buyers who long to own on the Atlantic seaboard or the City Bowl and have large budgets bu t not enough to buy in Camps Bay or Clifton, for example, Seeff’s Natalie Muller suggests they look at suburbs which still offer lower entry-level prices, but are located close to the high-end suburbs. These include the likes of Sea Point and Mouille Point, which are offering “some of the best investment opportunities right now”.

In Centurion, at least 50% to 60% of tenants would not be able to afford the homes they are renting, says Tiaan Pretorius, property consultant at Seeff Centurion.

While not many of them have made the decision to buy elsewhere, some have bought investment properties and then used the rental income to pay their current rent in more affluent areas.

“For R700000 a buyer should be able to get a two-bedroom unit in The Reeds, Monavoni or Die Hoewes. These areas offer a great place to gain entry into the Centurion property market.”

Similarly, Gauteng tenants looking to get a foot on the property ladder can find apartments in Fourways, Midrand, and even some parts of Bryanston, for under R900000, says Charles Vining, managing director at Seeff Sandton.
However, he does not believe that Joburg buyers will compromise by renting instead of buying in their areas of choice.

“This is because these buyers adjust their home searches to purchase within their price ranges.”

GAUTENG

Apartments like these in Die Hoewes offer good investment potential. Picture: M&T Development

In gated communities and golf estates in Sandton, house rentals start at about R25000 a month, says Seeff’s Charles
Vining.

However, those looking to buy such properties, would be “hard-pressed” to find one below R3.5million or R4m. This translates to a bond repayment of R35 000 to R40 000 by comparison.

For buyers with smaller budgets, Vining says Fourways and Midrand are fast becoming business and entertainment destinations in their own right.

“I think investors in these areas will greatly benefit from capital gains if they can hold their properties for five to seven years or more.”

Midstream Estate, Centurion Golf Estate, Southdowns Estate, Cornwall Hill Country Estate, Irene Farm Villages and “almost all the estates in Eldoraigne” are among those offering the best lifestyles, but are out of the price ranges of many buyers, says Seeff’s Tiaan Pretorius. Rents of such properties vary from R18 000 to R30 000 a month.

Pretorius says: “To purchase these properties will probably cost between R3m and R6m, with bond repayments from R30 000 to more than R65 000 a month.”

Buyers therefore often look to buy in areas like Centurion West, Rooihuiskraal, the Reeds, Lyttelton and Die Hoewes, mostly for investment reasons.

“These areas offer everything one needs like good schools, shops and public transport, and some also offer easy access to the Gautrain network.

“Finding tenants for your investment property would therefore not be a problem,” he says.

Smaller two-bedroom homes on the lower end are priced from R600 000 to R800 000 while three-bedroom units range from R900 000 to R1.3m.

While all suburbs in Centurion generally have potential to be up-and-coming hotspots, Pretorius says a few that could become the next “go-to” suburbs include Heuweloord, Valhalla and the outer fringes of Lyttelton Manor.

He says here the average sales prices for free-standing homes on large stands and close to good infrastructure, shops and schools are R1.2m to R1.6m.

CAPE TOWN

CLEVER Renting allows people to live in areas they love but where they cannot afford to buy. Picture: Sharon Ang

Centrury City is arguably Cape Town’s top mixed-use neighbourhood, and many want to rent there to be close to their places of work and leisure, says Helga Clemo, licensee for Seeff Century City. However, most tenants cannot afford to buy the properties.

“What is important to understand is that Century City is not a typical investment. Landlords rarely profit from their ROI (rental on investment) as most of that profit comes from their capital gain when they decide to sell. This ties into why tenants can afford to rent, but not buy.”

Monthly rental rates in Century City are R11000 for a studio unit and R12000 to R14000 for a two-bedroom apartment. To buy the two-bedroom apartment at around R2.15 million will mean a monthly bond repayment of just over R21000, plus transaction costs of more than R150000, Clemo says.

Areas from Green Point down to the southern suburbs, such as Wynberg and Tokai, are currently among the most popular suburbs in which to live, says Richard Hardie of Knight Frank South Africa.

In these areas a two-bedroom cottage will cost a monthly rent of R14000 to R20 000 while a three-bedroom cottage will rent for R17 000 to R25 000. 

Comparing the rent versus bond repayments, he says a R2.85m property, with a 10% deposit, will cost about R26 500 a month in bond repayments. To rent the same property would cost R15 000 to R16 000.

Jill Lloyd of Lew Geffen Sothebys International Realty says she sold a house that was being let for R25 000 for R4.256m. In addition to bond repayments, Seeff’s Natalie Muller says buyers will need to consider the transaction costs that can be “quite considerable”.

“On a R5.25m purchase this would be well over R600 000. On a R14.75m purchase, the transaction costs would be well over R1.75m.”

Seeff agents say other rental rates versus bond repayments comparisons are:

Camps Bay: Two-bedroom flat at R5.25m – R24 000 rent vs R51 500 bond repayment (excluding transaction costs).

                      Four-bedroom house at R14.75m – R45 000 rent vs R145 000 bond repayment (excluding transaction costs).

Waterfront: Two-bed apartment in Silo 3 at R9.994m to R14.9995m – R44 500 rent vs R60 000 to R100 000 bond repayment (excluding transaction costs). 


Go for location: Small in best area

WISE BUY Property is a good long-term investment, no matter where you buy. Picture: Supplied

Aspiring homeowners looking to rent in areas that have their hearts but still invest in property should look to buy in areas that offer good, stable returns, both in rentals and future sales prices, says Jill Lloyd of Lew Geffen Sotheby International Realty.

Those with a small budget should “always go for a tiny house or flat in the best possible area and position that your budget will allow”. When looking for these best possible areas or suburbs that will be future hotspots, they should be aware that that is “always a house wheel or cycle in the market”.

“Look for the places that were really popular in the past but have become a little dilapidated. History will generally repeat itself. You only have to look at London to understand this,” says Lloyd. “Property is an amazing long-term investment. “I often wish I still owned the houses I have owned in the past.


Think out of the box: Value in Goodwood

CALLING LANDORDS Apartments in the Strand are popular for rental investment. Picture: Seeff Property Group

Goodwood is “one of the most popular and affordable areas” with easy access to just about anywhere in Cape Town, says Johann Groenewald, licensee for Seeff Goodwood. Prices for two-bedroom apartments range from R650000 and three-bedrooms from about R900000.

He says townhouses begin at R1.3million and a basic three-bedroom house from R1.45m. Other areas that also hold future growth, according to Seeff agents, are:

The Strand: Although it will be a commute for workers in the city, beachfront apartments can be bought from R900000. Apartments in Beach Road range from R890000 to R8m. The Strand is very popular for rental investments, but you need to do your homework before investing.

Parow: The area is central and affordable, and there is a high demand for rental properties. Apartments range from R400000 to R600000 for a two-bedroom flat, and from R950 000 for a small house. A family home with garages and pool is, on average, around R1.8m.

Northern suburbs: These outer-lying suburbs offer excellent affordability and easy access to great schools and amenities. In Brackenfell a three-bedroom home in a gated village, with two bathrooms and a double garage, can be bought for R1.68m. In Kuils River a two-bedroom home with garage is around R800000, and is also popular for the rental market. Sonstraal Heights also offers affordable investments, and predominantly sectional title security complexes and freehold townhouses in gated complexes. These are popular for rentals. Sectional title apartments are priced from R1.05m and freehold townhouses from about R1.4m.

Parklands: A modern two-bedroom apartment can be bought from R750000, and a two or three-bedroom house with modern finishes sells from R1.3m. A three to four-bedroom house with luxury finishes, an entertainment area, double garage, pool and lots of play space for children can be purchased from R1.8m.

Big Bay: Two-bed apartments sell from R1.8m to R2.5m, three-bedroom townhouses from about R2.8m, and three to four-bedroom houses from R3.5m to R5.5m, although they can go up to, and even exceed, R18m in a luxury estate.

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