Investors seeking new property avenues to explore would do well to look at the more affordable sector
Apartments and houses priced under R1m might not have the glamour of high-end luxury developments, but with a large tenant pool and high return on investment, the affordable sector holds many rewards for the savvy property investors. Thanks to the low interest rate, demand for apartments within this price bracket has dramatically increased over the past two years, leading Central Developments to sell apartments within some of their previously rental-only developments. We chatted to Alda Erasmus, Head of Communications, about what this sector offers investors and why it’s still a good time to invest.
WHAT DO PROPERTIES PRICED UNDER R1M OFFER INVESTORS?
As an investor, you don’t want to put all your eggs in one basket. Investors can, for example, afford to buy two more affordably priced apartments for the price of one higher-priced buy-to-let property which allows them to spread their risk. Should an investors have an issue with a defaulting tenant, their income is dented but not wholly affected. Their tenant pool is also much bigger – properties in the more affordable sector are in high demand and there are more potential tenants able to rent for R6,000 to R8,000 a month than for R15,000 or more a month.
ARE YOU SEEING A LOT OF MOVEMENT IN THIS SPACE?
When the interest rates dropped two years ago, people who were previously renting could suddenly afford to buy an apartment and pay less for their bonds than on their rent. We have seen many people become homeowners over the past two years who might otherwise not have been able to. These have typically been young, first-time homebuyers. As the drop in the interest rates increased the demand for these more affordable properties, we began to sell off the apartments in some of our previously rental-only complexes. It was the perfect time to start selling these off as the demand was there and the market was ready for it.
HOW ARE SALES WITHIN THESE DEVELOPMENTS TRACKING?
All the apartments within Boardwalk Heights (Pretoria East) and The Junction Village 1 (Centurion) are sold out, Route 82 (Kibler Park) is 50% sold out and Oxford Heights (Montana) is 85% sold out with 480 of its 560 apartments sold since sales started in July 2021. We have plans to take San Ridge Heights (Midrand) to market soon. What has been quite interesting is that a few of the apartments have been cash-flow positive investments from day one, which is quite rare in investment properties as it usually takes about three years to achieve this.
WHAT RETURN ON INVESTMENT (ROI) ARE INVESTORS SEEING?
It depends on the selling price – the more affordably priced the apartment, the higher the return on investment. Apartments within Route 82, for example, cost between R665,000 to R839,000 with a projected ROI of 12.5% and 13.7%. Oxford Heights’ apartments cost between R685,000 and R1.041m, with an estimated ROI of between 13.3% and 11.8% in year one. The ROI in these cases is calculated on a projected capital growth of 5% and net rental income per annum.
DO YOU THINK IT IS STILL A GOOD TIME TO INVEST IN THIS SPACE?
Investors will still get a good return on investment now. Even though interest rates have started increasing slowly again, they are still low compared to pre-Covid rates.
WHAT ARE THE BENEFITS FOR INVESTORS OF BUYING WITHIN CENTRAL DEVELOPMENTS?
When we originally build these developments, they have to be financially viable for us. To ensure that they are, we do extensive research before we develop and choose prime areas close to public transport routes, shopping centres, recreational amenities and schooling. These developments are also already fully tenanted, in high-demand areas and have been operating successfully for four to six years, so the proof is in the pudding. We also have a preferred property management partner, CSi Property Management, which is an added benefit for investors. For a small monthly fee, they will take care of the nuts and bolts of the rental, from lease agreement renewal and maintenance to tenant vetting and chasing up payments.
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