When times are tough, invest in desirable rental market

RESIDENTIAL properties that achieve good rental returns remain a desirable investment option for South African portfolios during these tough economic times, says Rob Stefanutto, managing director of Dogon Group Properties.

He says one only has to look at Mazlow’s hierarchy of needs to see that during tough economic times people can do without a new car, a holiday or new clothes but they will always need shelter. Renting a property remains necessary.

“Due to the reality that less property may sell during tough economic times, it makes the available long-term rental market more attractive to a larger group of consumers who are unable to purchase at that time due to financial constraints,” he says.

“There is pressure on available rental stock, especially in the lower to mid-range markets where the bulk of investors purchase for rental returns.”

Stefanutto acknowledges that while a recession is not a good time to take risks, for those people who are in a position to purchase additional properties for rental income, it is a good investment, provided the investment is made on the correct type of property.

He says smaller properties in the mid-range markets are the most lucrative as they tend to have the largest pool of tenants who are seeking to rent.

“You will always have demand for the rental property and you should not suffer vacancies which hamper rental returns.”

Stefanutto says Gauteng tends to have better yields than Cape Town but Cape Town out-performs Gauteng on capital growth.

“Buyers should look to purchase in popular areas close to schools, transport and conveniences such as shopping centres and medical facilities,” he says.

An example is the southern suburbs of Cape Town, which are becoming increasingly popular as people are drawn to the location and access to good schooling and work.

“Dogon’s sales office in this area experienced a 55% increase in sales compared to the previous year, showing the rising popularity of this area.”

Relocation from other provinces is further driving demand for rental properties in the Western Cape.

Stefanutto says the demand for rental property in the province is driven by high-networth individuals moving to take advantage of the lifestyle offered, while the main bread winners move back and forth between the Cape and Gauteng for work.

“This is an unusual addition to the rental model and has a dual effect as these commuters usually rent homes in the Western Cape prior to buying a home in the province, while also renting smaller apartments in Gauteng to stay in during the week.”

In Dogon’s experience, the drought has not yet had a noticeable effect on the value of Cape Town properties and has not slowed demand, says Stefanutto.

“Recessionary conditions mean we are moving towards a buyer’s market.

“For those people fortunate enough to be able to purchase additional property, now is a good time to do so, safe in the knowledge that properties which bring in rental returns will remain successful additions to any portfolio.”