Investors eye ‘Generation Rent’

MILLENNIALS are fast becoming known in the property industry as “Generation Rent” as increasing numbers are opting to rent their homes as opposed to buying them. This trend is, therefore, making the buy-to-let market a good option for property investors.

The increased cost of living and tough economic conditions are an obvious reasons the younger generation are staying in the rental market for longer, explains Adrian Goslett regional director and CEO of Re/Max of Southern Africa.

Another key factor is that many desire to stay in trendier, often more expensive, areas they cannot afford to buy in, he adds. This is particularly evident in Cape Town where the price of property is “excessively high” relative to other cities in SA, says residential letting consultant for Trafalgar, Ahmed Hoosain.

“This group cannot afford to purchase even studio or bachelor apartments in the City Bowl or surrounds as the bond repayments, levies and other costs related to owning a property mean they either cannot qualify or will over extend themselves and fall behind on their obligations.”

He says the estimated cost of a studio apartment is R1 million to R1.8m, making the bond repayments and levies about R16 000 to R20 000 per month. To rent a stylish and modern studio apartment, on the other hand, will cost them R8 000 to R10 000 per month.

“With this in mind, it does become cheaper to rent and or share spaces to make it possible to live in the city and save a bit towards one day purchasing their own properties, although not in the city.

“This group, I find, have become reliant on parents to apply or co-apply for apartments on their behalf to ensure that they qualify for rentals.” Hoosain says this generation generally buys properties to rent out in new developments away from the high-demand areas. “They still rent flats to their taste in fashionable areas, even if they have to share with family or friends.”

Renting also offers millennials the freedom to “pack up and go” with relative ease, Goslett says.

Due to this desire of Millennials to rent as opposed to buy, Gerhard Kotzé, MD of the RealNet estate agency group, says buy-to-let investors throughout the world are “increasingly taking note of them”.

“In SA, for example, we know the average age of first-time buyers has risen over the past 20 years from 27 to 35. This indicates a significant number of young people are now staying in the rental property market for at least eight years longer than they used to.”

And the actual scale of the trend, he says, can be gauged from the fact that almost 20% of the total SA population of 55.9 million falls into the 25 to 34 age group, according to statistics from the UN Populations Fund South Africa – with a further 24% in the 15 to 24 age group coming along right behind them to drive even greater rental demand in the future.

“What is more, the supply of rental properties is already running behind demand because there has been insufficient new development since the 2008/2009 recession. The latest numbers from StatsSA show that the number of plans passed for new housing units last year was 45% down on the number passed in 2007.

In short, Kotzé says those who have the foresight to invest in buyto-let properties now stand to make an excellent return over the medium to long term.