The buy-to-let property boom takes off

Deeds Office and mortgage loan data (from both FNB and ooba) shows that buyers are investing in rental property and second homes again. The buy-to-let boom is fuelled by the recovery of the rental market with rental growth at an eight-year high (according to PayProp) on the back of strong demand for rental accommodation.

The trend is particularly prevalent in high-demand areas such as Cape Town where a steady influx of semigration tenants - who often rent before they buy - is adding to the already high local demand. Analysts also believe that the steady rise in urbanisation will continue to fuel further demand for rental property.

PayProp data shows that rental rates accelerated notably over the last year with the national average up by 5.6% versus 3.7% in January last year. The Cape performed even better with average growth of 9.6%, significantly higher than the national average. The province also boasts the highest national average rent at R11,285 per month.

TPN data reveals that the Cape boasts the lowest national vacancy rate at under 2%, highlighting the exceptional demand for rental accommodation. Despite higher-than-average rents, the region also enjoys the second highest number of tenants in good standing, providing landlords with a pool of good calibre tenants.

Significantly, rental growth is outpacing inflation which is average at just below 3%. The easing of inflation and more manageable borrowing costs are a strong incentive driving the increased appetite for rental investments, according to ooba. High demand and above average rental return further underscores the investment case.

Ooba stated that it has seen a notable increase in home loan applications this year, boosted by a surge in loan applications for rental investments, comprising just under 13% of applications compared to the historic average of 5%-7%. This is particularly prevalent in the Cape where some 32% of all applications were for buy-to-let investments.

Another incentive for rental investors in the Cape is the strong capital appreciation rates which continue to lead the country and top the national averages by some margin. According to the StatsSA Residential Property Index, prices appreciated by 8.5% on average by January this year compared to the national average of 5.6%.

The favourable conditions, supported by data from the various house price and rental indices, offer investors the opportunity to invest in a strong market and leverage steady rental income streams. That said, we always recommend that prospective investors do their due diligence and work with a credible real estate professional who can provide vital insights into local area demand, suitable property types and pricing.

Every month, Seeff helps thousands of clients opening doors to new property aspirations. If you are thinking about selling, or would like to assess what your property might sell for in the current market, please do not hesitate to contact us.

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