Less than 10% of investment property sales yield more than 30% on resale
Buy-to-let purchases are estimated at 7.24% of total home buying activity, according to Q2 2018 FNB Estate Agent Survey. This is down from Q1’s 7.9%.
This is noticeably lower than the 9.77% estimate of Q2 2017, and continues a lengthy period of single-digit percentage estimates for buy-to-let buying.
“Zooming in on South Africa’s major regions, it is the Cape Town housing market which until recently was the strongest regional housing market, that has shown the strongest buy-to-let estimate of 9.5% of total home buying for the first two quarters of 2018,” said FNB household market analyst, John Loos. “The recent estimates of buy-to-let levels in South Africa remain moderate by comparison to last decade’s boom period, where they were estimated as high as around 25% of total home buying at a stage back in 2004.”
While buy-to-let purchasing is non-essential, one of its big potential attractions is the expected capital growth that can be achieved. However, house price growth currently remains benign (4.6% year-on-year average house price growth was recorded in May 2018).
“For those more focused on the rental income stream, rental growth has not been overly exciting either,” he said. “The latest Stats SA CPI-Rental survey recorded 5.14% year-on-year rental growth, only marginally better than our most recent house price growth estimate.”
For investors selling their properties, FNB reports that an estimated 9.25% of resold investment properties achieved values in excess of 30% higher than the previous purchase price. This is significantly lower than the 17% achieved in 2016.