Weekend Argus (Saturday Edition)
Second home buying declines
Buy-to-rent purchases down, but holiday home market doing well
SECOND home ownership continues to decline in South Africa and more investment properties are being sold – often at reduced prices.
These are the findings of FNB’s latest estate agent survey.
“Perhaps it is to be expected that in these tougher economic times, secondary home buying overall would be placed on the backburner, given its non-essential nature,” says the bank’s John Loos.
But secondary home buying has not “fallen through the floor”; it is merely declining as a percentage of total home buying, he says.
“Secondary residential property buying reached a multi-year high of 14.47% of total home buying in the first quarter of 2017, the highest estimated percentage since the end of 2009. This estimate declined to 12.48% by the third quarter.
“These levels remain far below the pre-2008 boom levels, which exceeded 20% at times.”
The main category of secondary home buying is buyto-let properties, which also showed a decline in the third quarter. Agents estimated that buy-to-let purchases accounted for 8.23% of total home buying, slightly down on the 9.77% of the second quarter.
“The quarter- to- quarter estimates are somewhat volatile, so this does not yet confirm a declining trend.
“However, it does mean a continuation of single- digit buy- to- let buying estimates, which have been a feature for most of the time since 2010, and these are levels far below the above-25% estimates seen back in 2004 at the height of the housing boom.”
Agents also saw a slightly higher estimated level of investment properties being sold, Loos says, explaining that this was due to their achieving lower-than-expected income.
Although this increase suggests a possible deterioration in the popularity of owning investment properties, the lev- els remain “moderate”.
“It goes further. We asked agents to provide an idea of prices being obtained for investment properties being resold and have started to see a slight rise in the estimated percentage sold below previous purchase price.
“We have also been seeing a marked rise in the estimated percentage being sold at purchase price and not above.”
Another category of second home buying that has declined noticeably is the percentage of people buying property for use as a home for relatives.
However, the estimated holiday home buying percentage has “surprisingly” not yet shown a noticeable decline.
Gary Palmer, chief executive of Paragon Lending Solutions, says despite these statistics and the fact that the country is experiencing a low-growth economy, there is still money to made for the astute investor in the buy-torent market.
Economic constraints, generational choices and evidence that the real costs of owning a house can be twice that of renting, are shifting the business models for both investors and developers.
Younger people in particular are drawn to renting.
“While older generations still seem fixated on owning their property, millennials prefer a less constrained lifestyle. They move from place to place quickly as work and life opportunities present themselves and are not as driven by the need to own their own homes.”
But while buy-to-let investments are attractive, Palmer says only those who enter this market at scale will realise real returns.
“If you want to make money in the current economic environment you need to scale your investment.
“Aggregating costs across multiple properties offers real benefits. When you buy multiple investment properties you take your yields from about 4% of a single property investment to about 10% if you own and manage multiple properties.”