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Tuesday Apr 18, 2017

Junk status 'could boost buy-to-let sales'

Two property markets should gain momentum in the aftermath of South Africa's downgrading to junk status: the rental market and the Western Cape property market with semigration likely to continue unabated.

While the effects of the downgrade are likely to be felt only next year, the psychological impact could see South Africans being extra cautious when it comes to buying property.

FNB household and property sector strategist John Loos says it is too soon to see any effects of the downgrading.

He believes interest rates will still be "sideways" for the foreseeable future. "However, the shortterm impact is that consumer confidence could be dented... and this could see consumers become more conservative."

Gerhard Kotzé, MD of the RealNet estate agency group, says those considering buying might abandon their plans and continue renting, while the number of distressed sales could increase, with former owners opting to rent.

In the longer term, he says, the most likely effects of the downgrade will be a weaker rand, higher inflation, higher interest rates, and more difficulty getting credit. Those with the nerve and capacity to invest in buy-to-let property in high-demand areas would fare well.

"Rental property owners stand to make excellent returns over the medium to long term. Annual rental yields are set to keep rising, while the capital values of rental properties should show solid growth over the next five to 10 years as supply falls further behind demand."

Residential letting consultant for Trafalgar, Ahmed Hoosain, says potential buyers may hold back and not enter the market, fearing steep interest rate rises. This, he says , could see the rental market escalate and "as demand increases, rents will escalate".

"Another thing we could see is a lot of people moving in together or moving back with family."

Laurie Wener, Pam Golding Properties senior executive for developments in the Cape Town metro, says they have seen buyers prepared to pay a premium for new units with delivery between one and three years.

"This trend is gathering momentum, driven by factors including an incoming stream of home buyers mainly from Gauteng and KwaZulu-Natal. They include a high ratio of investors seeking sound medium to longterm investments and entering the short or longterm letting market," she says.

The buy-to-let market will also thrive in Gauteng. Although the uptake in d e ve l o p ments there is not as feverish as in the Cape, Jason Shaw, national sales executive for PGP says buyers are acquiring units in a number of developments in key growth nodes such as Rosebank, Melrose Arch and Menlyn Maine in Pretoria.

"Ongoing infrastructure upgrades, commercial and retail developments are proving a catalyst for further residential development projects, with eager developers ready to bring products to the market," he says.

"An interesting new trend is demand from Capetonians, who live and work in the Mother City, looking to buy properties in Gauteng as buy-to-let investments.

"Inquiries for properties close to Gautrain stations are running high," says Shaw.

Vivian Warby
Independent Property

Independent Property appears every Saturday in the Weekend Argus

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