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Real Estate: Reviving Buy-to-Let trend with a New Strategy

In the current economic climate, potential investors are questioning the viability of property investment in South Africa. With high interest rates and low bond approval rates, is property still a sound investment as it was three decades ago?

Let’s talk stats and trends in South Africa’s for 2023-2024:  

1. House Prices: Despite a dip in house prices and buying activity since February 2023, we remain hopeful for a positive shift. 

2. Investments: The value of investments allocated to COMMERCIAL REAL ESTATE in South Africa GREW, with a big sector shift. Since 2021 more and more money has been invested in alternative living (non-traditional types of housing, like tiny houses, co-living spaces, or eco-friendly homes) and flexible hospitality segments (short term rentals, Airbnb, hotels, authentic culinary tourism restaurants and tourism sectors), at the expense of office sectors, thus investors chose to put their money into alternative living and hospitality instead of office real estate. 

4. Industrial property: This market showed resilience since 2023, despite challenging operating conditions such as load shedding, fast-rising operating costs, subdued economic growth, and elevated interest rates. A prime example of industrial property is storage facilities. Have you observed their abundant presence? It’s quite remarkable!Despite challenges, the industrial property market was still considered the best placed of the three major commercial property types (office, retail, and industrial) due to rental growth and low vacancy rates. 

Leverage these statistics and integrate them with the tips below, to establish a successful real estate investment portfolio:  

1. Property exempted from Transfer Duty: Invest in properties valued less than R1,100,000.00, to side-step the charge.  For instance, a 2 (two) bedroom apartment in a secure estate in the right neighbourhood (your property’s position is one of the most important factors when it comes to property growth, selling or attracting quality tenants), priced at R1 099 000.00, would make a great investment with zero transfer duty payable.

2. Research the Rental Amount: Research is required to establish the rental rates of similar properties in the area, contact our offices to introduce you to prestige realtors and property experts. 

3. Deductions: It is important to remember that bond premiums, property rates and taxes, building insurance, levies (if sectional unit) and unforeseen costs (maintenance, repairs, and damages) shall be deducted from the rental income amount. 

Let’s do the math: 

Rental Yield Calculation: For a property valued at R1 050 000.00 with a rent potential of R108 000.00 per year (R9 000.00 per month), the yield percentage would be 10.2% (the higher, the better!) 

Quick formulas: 

Profit Calculation: Subtract the property cost (operating expenses from the rental income to determine potential profit). 

Those in the know, often suggest that a robust net rental yield is 7% or higher. 

Whilst there will always be risks involved in buying property with the purpose of letting, the risks can be mitigated by planning carefully to ensure a reliable source of income in the long-term.

Our conveyancing department is not just your everyday property lawyer. We go above and beyond to ensure that your property investment remains a feasible choice in today’s economic climate.

Author: Aniche Heine (Consultant, Attorney and Conveyancer) 
Email: aniche[at]debruynlegal.co.za

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