Whether it’s the scramble to secure student accommodation, the weak currency luring foreign investors, young professionals getting onto the property ladder or general optimism, property buyers and buy-to-let investors are snapping up properties quicker than developers and sellers can put properties on the market. And, in an ironic turnaround, with a large pool of buyers and smaller pool of sellers, many properties are selling for above asking price. The bidding wars are reminiscent of the property market in Scotland and although the bids are not sealed as they are there, agents around the country are reporting that multiple bids (which include asking price offers) on properties in high-demand areas, are inducing buyers to offer above asking price in order to seal the deal.
Take t he Atlantic Seaboard for instance where shopping for property is almost akin to property hunting in a f irst-world city such as London. January and February 2014 saw just about every available mid- and upper-midvalue property snapped up with agents scrambling to f ind stock. The same is true for the Southern Suburbs of the Cape where stock is scant.
“The property market seems to be defying the odds, with demand in the major metropolitan sectors continuing to strengthen month on month. This, despite the economic setbacks of lower growth, the falling rand, petrol and cost hikes experienced over the past year,” says Seeff chairman Samuel Seeff. “Major stock shortages are now evident in the major metros and in many areas we are beginning to see the emergence of a sellers’ market where
BY GLENDA WILLIAMS
sellers are getting multiple offers and better prices,” he adds.
The Cape metro in particular is performing well, especially higher income areas such as the Southern Suburbs, City Bowl and Atlantic Seaboard where well-priced properties are l iterally f lying off the shelf. One of the reasons for this, says Seeff, is that price growth has remained relatively f lat over the last few years and buyers are looking to capitalise on this before the market turns and prices start hiking again.
“Despite the continued petrol price hikes and other cost escalations, we believe that the high demand will be sustained largely as most buyers have now become used to the prevailing economic climate that has become the ‘new normal’. The thinking is also that if I don’t buy now, I may well miss the boat; either the interest rate will go up soon or prices will start hiking quite significantly, so let me buy sooner rather than later,” adds Seeff.
Rental demand is also currently outstripping stock availability and this spells opportunity for buy-to-let investors. But buying now as opposed to buying in the downturn could mean a double-edged sword as properties are starting to sell for record prices due to stock shortages. Nonetheless, the demand for student accommodation will remain, so investors buying into this market are almost certainly guaranteed income in the long term.
Income production for buy-to-let investors often outweighs that of house price growth and with the current supply shortage both in terms of properties for sale and for rent, there is good reason to believe that both are likely to yield better returns than have been posted in recent years. Perhaps a significant factor is that the rental market, on the back of a two-year declining trend, is now marginally outperforming that of house price growth.
This could be good news for buyto-let purchase growth where f igures in recent years have been less than electrifying. Slumping from 25% in 2004 to 7% in the third quarter of 2013, the slight 1% gain to 8% in the fourth quarter may spell an upturn in this market.
With Johannesburg the economic and f i nancial t itan i n Africa, it is not surprising that the bulk of the
rental market stems from this region. Michelle Dickens, managing director of TPN Credit Bureau, says that 87% of tenants in South Africa rent below the R7 000 per month mark, with 40% of all SA tenants residing in Gauteng. Interestingly, adds Dickens, the City of Johannesburg alone has more tenants than KwaZulu-Natal’s 16%.
COMPARING SOUTH AFRICA’S RENTAL YIELDS
Whether as a buy-to-let or short-let leisure property, yields have not been as strong as our Tanzanian, Madagascan and Kenyan neighbours who, in the past, have posted substantially better yields. This phenomenon however is not unusual in f irst-world cities where rental yields posted are often low due to stock constraints and where house price growth has historically been the key objective.
According to Dickens, the City of Johannesburg delivered the best gross yield at 10.13%, compared with Ethekwini metro in KZN at 9.02%. Of the major metros, the City of Cape Town had the lowest gross yield at 8.15%.
Property price segment also plays a sizeable role in rental yields. According to FNB data on area value bands, the lower-income areas yield better returns at 9.97%, with middle-income areas 8.79% and upper-middle-income areas posting 8.63%. High-income areas posted the lowest gross yield at 7.62%.
Yet, South Africa’s rental yields remain somewhat f lat in comparison to other countries, emerging markets among them. But taken in context, even London’s rental yields are nothing to get excited about. The emphasis with London properties, as with many other f irst-world cities, most of which also post low-rental yields, is on house price appreciation rather than rental yield. FNB reports a 9.18% national gross yield but it is the all-important net yield (that take into account operating expenses and costs, which can substantially erode rental income), which is tantalisingly out of reach. Nonetheless, speculation about net yields has yield-
Seeff chairman Samuel Seeff