Here’s Y you should buy-to-let before it’s too late

Generation Y is rapidly also becoming known as “Generation Rent” in property circles – and bolstering the prospects for buy-to-let investors in the process.

“Many members of Gen Y – most of whom are still in their 20s – would like to take advantage of the current low interest rates and buy their own homes, but they are often too weighed down by student loans, other debt and a lack of savings to do so right now,” says Berry Everitt, managing director of the Chas Everitt International property group.

“Others are simply not ready to settle down, preferring to rent and have the freedom to travel and try out different jobs or work on a series of contracts. And either way, the trend is positive for buy-to-let property investors.”

Indeed, he says, the average age of first- time buyers in South Africa has shifted in the past 20 years (while Gen Y was growing up) from about 27 years of age to 35 – which means that a significant number of young people are staying in the rental pool for at least eight years longer than they used to, and explains in large part why the demand for rental homes in this country keeps rising.

Writing in the Property Signposts newsletter, Everitt says this demand has also been boosted since the 2008/09 recession by homeowners who have had to sell their properties to relieve financial pressure and have been unable or unwilling to buy again.

“And the pressure on supply continues to grow, because there has been so little new housing development in the past five years.

“Last year, according to Statistics SA, only about 43 000 new houses, flats and townhouses were built in the whole country, with its population of some 52 million people.

“In short, everything is in favour of buy-to-let property investors now, so it is somewhat surprising that they only account for about 8 percent of the total number of property transactions.”

Back in the “boom days”, he says, almost a quarter of all purchases were being made by buy- t o- l et i nvestors, even though interest rates were far higher than they are now, and even though there was an oversupply of rental stock and it was a struggle to find and keep tenants.

Everitt concedes that real capital growth has been slow since 2007 (14.9 percent according to FNB), and that the economic difficulties that have affected homeowners have also affected tenants and kept a lid on the rental increases they could absorb.

“However, with interest rates at their lowest in almost 40 years and the demand for rental accommodation set to keep growing (especially when interest rates start to move up again), the current market is offering some outstanding opportunities and we think there really ought to be more excitement now about buy-to-let investing.

“Annual rental yields are rising and are already significantly higher in most areas than the interest you can earn on money in the bank, and property value increases are starting to get ahead of inflation once more.

“Consequently, anyone who can muster a 20 or 30 percent deposit and buy rental property in a good location right now stands to make an excellent return on their investment in the medium to long term – and certainly a much better return than those who wait until buy- to- let investing is in fashion again.”