Post-lockdown prospects
Yes, there will be life after lockdown. South African investors are still making plans to buy, sell or rent
Life will go on after lockdown. Admittedly with more financial prudence and creativity – but savvy investors will be buying solid properties to let and some will be selling or delaying sales by switching to rental income. In what is certainly a buyer’s market, where are SA’s buyer and rental investor hotspots?
According to the most recent PayProp Rental Index Annual Review, Gauteng is the second-most expensive province to rent in, after the Western Cape. Tenants in Gauteng paid 3.66% more in Q4 2019 than in Q4 2018, a growth rate that is slightly higher than the average national increase of 3.27%.
Although 2020 is a different story, one that so far has been fraught with economic unpredictability, Seeff Property Group chairman Samuel Seeff believes the rental market could benefit.
“Rental demand will climb notably as many will be forced to rent for financial reasons or while they wait to see how the economy unfolds,” he says.
LESS RISK
The PayProp review also tracks tenant credit and payment data. “While the percentage of high-risk tenants and average credit score in Gauteng were worse than the national average, both measures improved from Q4 2018,” says Johnette Smuts, PayProp data and analytics head.
“There’s a trend of more affluent South Africans choosing to rent rather than buy high-end properties,” says Jawitz Properties Johannesburg Northern Suburbs rental consultant Catherine de Villiers. “I’d advise investors to buy in areas that target the middle to higher price brackets, because there is generally less risk of tenants not paying their rent.”
De Villiers suggests looking at suburbs that are in demand but not oversubscribed, where prices have held their own and there aren’t too many new units available. In her view areas like Athol, Illovo, Melrose, Craighall, Craighall Park, Dunkeld West and Rosebank currently have good rental potential.
In Cape Town, her colleague Hayley VannHerbert, Jawitz Properties Southern Suburbs sales manager, offers a different view. “Popular areas such as Claremont and Kenilworth are doing well. High-end properties are the sector of the market that is struggling, because owners expect the same rentals they received over the past two years.
“However, rental properties that are correctly priced go very quickly,” Vann-Herbert says, citing the example of a Constantia property that was let within 24 hours recently.
RENTAL BRACKETS
The PayProp data shows that a smaller percentage of people nationally were renting in the lower price bands in Q4 2019 vs Q4 2018, whereas the percentage of tenants in higher price brackets increased. Yet in middle brackets little has changed over the past year – in the last quarter, 32.4% of tenancies fell within this middle bracket versus 32.9% the year before. How would 2020 pan out for investors looking for tenants in the lower, middle and higher price brackets?
Cape Town developer Horizon Capital has boutique residential developments on the Atlantic Seaboard and in the City Bowl. MD David Sedgwick says the market is restrained. “Rentals in the higher price bracket have dropped considerably over the past 12 to 18 months and I wouldn’t be surprised to see this trend continue. I think 2020 will be another year of tenant retention across all segments.”
Horizon Capital doesn’t develop on spec. Construction starts only once there are sufficient presales to begin a project. But should developers consider listing unsold units as rentals to meet cash flow challenges?
“It’s difficult to do this because Sars has changed its regulations, requiring developers to pay 15% VAT immediately on new developments that are let, even if it is a temporary measure to assist with cash flow until a purchaser comes along,” says Sedgwick. “Sars sees this as a change in use or intention. We hope it will reconsider this policy in light of the economic conditions.”
SALES DEMAND
Duane Butler, Seeff’s licensee for Randburg, says agents are corresponding digitally with sellers in preparation for a pick-up in demand following lockdown. The R1m to R2.5m price range should be active in the greater Randburg region. “This sector offers excellent stock and value for buyers,” Butler says. “Rentals will be busy, with some landlords giving a level of relief to tenants.”
Pam Golding Properties Fourways area manager Ken Woollcott says there has been enormous expansion in Fourways in the past few years, including developments aimed at firsttime buyers. “Garden units in popular complexes are in demand,” he says.
How are rentals in the Winelands faring? Adele Combrinck, development consultant at Le Parc Residential Estate in Paarl, says that as developers they’ve been prudent not to introduce too much stock.
“At Le Parc our investor buyers have been able to secure tenants reasonably quickly,” she says. “Most likely our success is thanks to the fact that we appeal to a middle-to-upper tenant – professional couples or young families. Our rental homes start from about R14,000 per month.”
Covid-19 will surely slow down property sales, though. “We don’t believe there needs to be much more incentive beyond price adjustments,” says Samuel Seeff. “The period after Covid-19 will be characterised by pent-up demand from buyers eagerly waiting to take advantage of the market, especially in the sub-R1.5m sector, up to R3m in some areas.” He is confident the market will settle despite initial delays in transactions owing to deeds office closures.
Combrinck agrees. “Le Parc Residential Estate appeals to buyers looking to purchase homes in the Winelands in the R2m to R3.5m price band. This is arguably the most active segment and it will most likely remain unchanged for the foreseeable future,” she says, adding that buyers typically would have this type of access only in a more expensive estate.
“Price will be important in the rental market. Landlords will need to keep rentals at current rates for renewals in the next six months,” says Seeff Winelands rentals manager Marinda Uys. “We expect higher rental demand but also an increase in stock from developers and from properties that aren’t selling. Tenants under financial pressure will look to move to cheaper accommodation.”
Lindsay Goodman of Greeff Christie’s International Real Estate in Hout Bay has had a lot of interest from overseas buyers wanting to purchase property across all price levels. “As the rand weakens, we see more interest from younger buyers working overseas who want to get their foot on the property ladder,” she says. “Domestically, many buyers look for distressed sellers where they can get a ‘good buy’, given the current circumstances.”
“Don’t sell. Rather find out what the market wants and give it to them”, is the advice from Empire Wealth CEO Anton Breytenbach to investors. He suggests turning a property into a multi-let to be used for residential rentals, shared office space, mini industrial units or pop-up retail.
“We are going into the biggest buyer’s market of our time,” he says. “Aspiring investors should get access to capital now. When the market swims downstream, you swim upstream.”