Etchells & Young Newsletter

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6 January 2012 - Article by Michelle Etchells

Property Trends 2012

There is reason to believe that 2012 will be a good year for the property market in South Africa especially in comparison to other countries which were harder hit by the recession.

Buying Property 2012

House prices and interest rates are at an all time low increasing affordability and in some areas making it even more affordable to own property than to rent with home values declining and residential rentals rising. With interest rates at 9%, if a buyer has a 10% deposit and the property is under R750 000, it will be cheaper to buy than to rent. This is great news for the for first time home owners. The lending volumes however will be maintained as in 2011, making it a little more difficult to obtain finance. Most banks are currently credit-scoring potential borrowers to make provision for a 1 or 2% interest rate increasing the future. This is good for those who are approved for home loans as it creates financial resilience to stay afloat should such an increase occur.

Renting Your Property 2012

Rental prices are steadily rising due to demand for quality properties especially in the northern suburbs of Johannesburg. However owners must still be cautious not to overprice their rental properties. Area plays a big part in market related rental prices. If the price of your rental property in Morningside for example is priced the same as a similar property in Hyde Park, you are overpricing your rental property. If you are using a Rental Agent, it is their responsibility to price counsel you and ensure the price of your rental property is market related and easily achievable. Quality rental homes offered at the right price will move quickly.

Selling Your Property 2012

There is renewed stability in the market as Sellers are starting to accept current price realities in the South African property market. If you are considering selling your property in 2012 it is recommended that you seek the services of a qualified professional agent who will be able to guide you in terms of a realistic market related price. In 2012 Estate Agencies will become reluctant to take on overpriced sales properties. Reasonable demand remains in the market and the sellers who accept price realities, and utilise the services of a professional estate agent, should have no problem to sell in an acceptable time at an acceptable price.

3 October - Article by Michelle Etchells

Increasing Rental Rates......

Currently 51% of homeowners who sell their properties because of increasing financial pressure, would rather rent than buy cheaper property. Under supply of rental stock is ever increasing and this is going to put active property Investors in a favourable position in the next few years. Rental growth has moved from 6% in June 2010 to 8,3% in June 2011, this is according to the Stats SA Quarterly survey.

Joburg rentals in the middle house segment have been considerably strong with high demand for 1 and 3 bedrooms and slightly less for 2 bedroom units. The corporate rental market however, is not doing as well as a result of corporate organisations cutting their budgets and being reluctant to spend more than R25 000 per month on high-end furnished properties. An oversupply of furnished properties on the Northern suburbs is a direct result of the 2010 Soccer World Cup which was held in South Africa last year.

Advice to owners of furnished high-end properties is to ask market related rental prices. Overpricing can be dangerous as you run the risk of the property being vacant for weeks if not months. Owners should calculate the cost of the property being vacant VS the monthly cost of storage in order to rent the property without furniture at a lower rental but with less risk.

8 September - Article by Michelle Etchells 

Your Tenants - Are they paying?  On time?  The full rental?  At all?

There has been a 2% decline of tenants in good standing in Q1 of 2011 from 81% to 79% on Q2 of 2011.  15% of tenants in Gauteng defaulted on their rental payments in the 2Q. The breakdown of these figures as follows:

Paid on time: 66%
Paid late: 13%
Did not pay: 12%

The increased percentages are more than likely as a result of the mounting financial pressure on households brought about by debt, increased unemployment, price hikes in food, electricity and fuel affecting monthly expenses and thus decreasing the ability to pay rent on time/in full/or at all. The most affected price bracket are rentals under R3000 p/m with only 72% of the tenants in good standing, 58% paid on time and 18% did not pay at all. Similarly properties priced at R12 000 p/m and up were also performing badly at 74% in good standing, 57% paid on time and 16% not paying at all.

Properties priced between R3000 and R7000 were performing much better at 83% in good standing. 70% paid on time and only 8% did not pay. These figures are an indication that owners need to be more vigilant when selecting tenants, the safest route would be to appoint a Professional Rental Management Agent to source a quality tenant and manage the property and the tenant on a monthly basis.

Why NOW is the best time to INVEST in property in South Africa

If you have access to cash or financing, now is the best time to invest in the property market. For buyers all the right conditions are in place. 

• Rentals remain the only option for those that do not qualify for a bond; are saving for a deposit or are downscaling in order to regain financial footing. Therefore rentals are in high demand and this means good returns for those who have invested in buy-to-let properties.

• Prices are low with an overflow of supply versus demand. However, economists believe that the market has reached its low point, and it may be that potential buyers will lose out if they wait too long for further unwarranted price reductions. It has never been clearer that NOW is the time to buy.

• Interest rates remain unchanged and at a 30 year low, with the prediction that they will remain low hovering between 9 and 10%.

Circumstances in the property market are seldom this favourable with the above conditions enabling investors to take their pick of a wide range of properties at bargain buy prices. Predictions show that this situation should remain for the next 6 -12 months, before increasing growth affects property prices.

However, the days of making quick profits on property are long gone...... Buyers need to have long term views when they decide to invest in property.  In saying this, investment in property is still the best and most solid form of investment in South Africa where the lack of finance is increasing the demand for rental property. 

Buy-to-Let - Protect Your Investment

The buy-to-let investment choice is very popular. especially in larger areas like Johannesburg. Renting out the property helps you pay off the bond, while the property increases in value. The obvious advantages are that the bond pays for itself and the investment takes care of itself as long as the property is maintained.  Once the bond is paid off it continues to be a constant flow of monthly income. 

Like any good investment this investment option does not come with any guarantees and there are a few very important factors that need to be considered. 

You must firstly research the market and the area in which you are looking to buy. Choose an area where people would like to live. Transport routes and schoolsare important factors. Research the rental prices in the area/complex before purchasing the property, consider your return on investment (rental income vs bond payment + levies).

To protect your investment you need to look at the following questions: 

•  Do you know the rights of your tenant?
• Are you operating within the law and specifically the rental housing act?
• Are you protected against devious and disgruntled tenants who might craft a case against you at the Rental Housing Tribunal?
• Do you have sufficient time to attend to the needs of your tenant?
• Do you provide your tenant with monthly invoices and statements?
• Are you monitoring your property for repairs and maintenance?
• How do you manage tenants that have an emergency repair e.g. burst geyser?