Best current options for property investors

A year ago, South Africans were pleased when the prime interest rate was cut to 10%. Now it is 7% - the lowest level in more than 40 years - and could even go a little lower by the end of this year before starting to go up again next year.

And this means, says Gerhard Kotzé, MD of the RealNet estate agency group, that  property buyers and investors have a six- to 12-month window to qualify for home loans at the rock-bottom levels which make the market accessible to so many more people and are already fuelling high demand among first-time buyers.

"The current rates mean, for example, that the household salary required to qualify for a R1m bond (at prime) is now just under R26 000 a month, compared to R32 000 back in January. The monthly instalment on such a bond has also fallen, from R9650 to R7752, which is also much more manageable for many consumers, considering that the repayments on many other kinds of debt, such as car finance and credit card balances, have also declined."

Low rates are also making it easier to invest in property, he says, and RealNet believes there are three types of property that property investors with a medium- to long-term view should be piling into right now. These are:

• Small rental units in the parts of the big metros that are within walking distance of work opportunities in big industrial complexes or essential services such as a big hospital. (Examples are Alberton and Kempton Park in Ekhuruleni or Tygerberg in Cape Town.)      

"Cheaper areas that offer easy access to the Gautrain and other rapid public transport (Centurion, Midrand, Braamfontein, Milnerton and Table View, for example) are also popular and, at the higher end, the increase in remote working has also boosted the popularity of live-work-play areas such as Century City, Melrose Arch, and Menlyn Main," says Kotzé.

"There are almost always tenants for studio and one-bedroom apartments in such areas, and while rentals may not be as high as elsewhere, employment in essential service jobs and remote-working IT jobs is usually less risky and more regular, so the default rate is also not high, provided your units are well-managed and in well-secured and well-run complexes."    

• Sectional title rental units in the most popular coastal holiday destinations around Durban and Cape Town - provided you can negotiate a "bargain" price.

"And this should not be too difficult at the moment," he says, "since there are many units being 'offloaded' now by overextended owners who can no longer afford them. The reason we are advocating this type of purchase - at the right price - is that the Covid-19 pandemic makes it likely that most South Africans will be taking their holidays locally for a long time to come, and seeking to rent accommodation in their favourite coastal resort towns.

"Such units can also be used for your own holiday accommodation, preferably in the off-seasons, as your earnings from short-term tenants will be highest in the peak holiday seasons. Once again, though, if you want to get the best yield from such units, you must have a good managing agent."     

• Retirement units in established, well-run retirement villages that offer assisted living and frail-care services.

"The over-60 cohort is the fastest-growing sector of SA's population, but a very large percentage of our senior citizens cannot afford to buy into a retirement village, while an increasing percentage prefer to rent - at least for a few years - in case they decide to relocate from the city to the coast, for example, or from SA to join their children in another country," says Kotzé.

"Adult children will often also rent retirement village apartments or cottages on behalf of their aging parents who need professional assistance. There is thus very high demand for reasonably-priced rental units in well-located RVs, and the risk of default or lengthy vacancies is usually extremely low."

The most popular retirement destinations in SA, he notes, include Hermanus, Mossel Bay, Knysna, Plettenberg Bay, and the KZN Midlands and South Coast, as well as Randburg, the East Rand and the eastern suburbs of Pretoria.