Buy-to-let investors would be happy to know that at least 45% of South African tenants will continue to rent property for the foreseeable future.
This is according to a TPN Credit Bureau Tenants Wish List survey on why tenants rent property instead of buying.
Of those surveyed, 45% cannot afford to buy property hence they rent, flexibility to move (15%) and poor credit (14%). Additional reasons why tenants rent property include not wanting debt, emigration, political instability, and renting is cheaper than buying.
“Happy tenants pay rent on time and they rent property for longer,” says Michelle Dickens TPN managing director. She was speaking at the BizNews Finance Friday webinar (see below).
Dickens says 50% of tenants aged 18-29 years said they cannot afford to buy property. Nearly 20% of this age group rent because of the flexibility to move when they need to.
Banks and estate agents continue to point to low interest rates and falling house prices as reasons for buying. While this may be the case for some, poor credit records and job losses is the reason many continue to rent property.
Tenants aged between 40-49 recorded a high of 20% of those who have poor credit records hence they rent property.
Will tenants rent forever?
Dickens says particularly in the lower-end of the market tenants certainly have aspirations to buy. “These tenants say they will rent property for now and consider buying in the next five years.”
Nearly 60% of tenants renting properties priced below R3 000 per month cannot afford to buy property. The next highest percentage are those renting in the R3 000 to R4 500 per month price bracket.
Dickens says many tenants will not rent property forever. Those who will buy a year from now account for 27.21% of tenants, with 28.49% indicating buying in two years’ time.  Some will buy in five years’ time (22.60%), with 21.71%) going to rent property for the foreseeable future.
Across all age groups of those looking to rent property long-term, they prefer to rent well-maintained properties. Tenants would rent property in sectional title townhouses, in complexes and freestanding homes.
“If you have a quality asset, you will attract good tenants, so it’s important to maintain the property.”
Insights on investment properties
By the end of September, 75.1% of residential tenants nationally were in good standing on rentals. The national vacancy rate went into double-digits (11.39%) by Q3 2020 from 9.13% in Q2 2020, according to TPN.
“When investing in property, make sure you get a return on your investment, and understand the market you are going into.”
TPN services agents and private landlords and provides tenant data and rental market information and not property investment advice.
For investors looking to buy, 56% of the rental population is in the R3 000 to R7 000 price bracket. Up to R12 000 per month is a good buy, with the sweet spot being properties priced between R4 500 and R7 000. The expensive the rental property, the lower the yields, says Dickens.
Read also: Buy-to-let investments hit by double-digit vacancy rates and flat rentals – national snapshots
“Gross yields are good on affordable properties, and two-bedroom sectional title units are performing better than full title properties.”
She urges investors to do thorough research before taking on tenants to avoid the risk of defaulting.
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