The case for buying to let

Market commentator Francois Janse van Rensburg points out that banks won’t lend consumers money to invest in stocks, but they will lend you money to buy property.

The bank’s risk is fairly low: the loan is secured by the property itself, and the bank can sell it if you don’t pay. He makes this point in his book Making Money Through Buy-to-let in South Africa.

The likes of Janse van Rensburg say that, when buying property for investment purposes, “work on the basis of never using your own money to buy an investment property; ie, always try to use the bank’s money instead.” So, when deciding between investing in property or equity, do the maths.

But when deciding between investing in property or nothing at all, the argument for property is still a strong one.

Slowdown in economic growth and the Reserve Bank’s interest rate hiking cycle of last year exerted downward pressure on South Africa’s house price growth. It is expected to average about 3% in 2017, down from 5% in 2016, according to FNB.

But slower house price inflation that underperforms rental inflation helps to lift rental yields, said John Loos, FNB’s household and property sector strategist. The national average gross residential yield hit 9.06% in the third quarter of 2016. “Our average house price-average rent ratio index … [has] begun to show a decline in this ratio. This implies rental inflation outpacing weak house price inflation.”

For this reason, “buy-to-let investors are among the only residential sector investors expected to yield better than inflation income this year,” reported hometimes.co.za.–