Prime areas for buy-to-let investments | Everything Property
17 September 2023

Prime areas for buy-to-let investments

Knightsbridge, Century City


Residential areas that provide good returns for long-term investors who buy property to generate rental income

The latest rental data from PayProp indicates a remarkable recovery in the rental market, with rental growth reaching its highest levels since 2017. Additionally, ooba’s sales data reveals that buy-to-let investments constitute over 10% of bond applications, showing a promising upward trajectory. 

While the Western Cape is often lauded as a top property investment destination, opportunities abound in various urban areas nationwide, thanks to a growing demand for rental accommodations.

For instance, Randburg, known for its dynamic rental market, offers excellent prospects for buy-to-let investors in apartments, townhouses and freestanding homes, according to John O’Reilly, a rentals agent with Seeff Randburg. One- and two-bedroom apartments in the R800,000 to R1.5m bracket offer good rental returns. 

Also in demand are houses (freestanding and in complexes and estates) in the R1.2m to R2.5m range, specifically in Randpark Ridge, Boskruin, Northcliff, Fairland, Linden, Weltevredenpark and Greenside. These areas attract more long-term rentals, which provide good long-term returns.

Gauteng prospects

The average gross rental yield in the Randburg area varies between 8% and 12%. The net rental yield depends on the property’s condition – newer, well-maintained properties will produce better results. If you want to invest between R1m and R1.5m, O’Reilly recommends suburbs such as Linden, Northcliff, Fairland, Randpark Ridge and Boskruin. Still, he notes that thorough research, property inspections, and budgeting for costs like levies, rates, taxes, and maintenance are essential steps for prospective investors. Location remains a pivotal factor in investment decisions.

The rental market in Centurion is best for two- to three-bedroom units, priced from R750,000, in sectional title complexes. Additionally, Tiaan Pretorius, manager for Seeff Centurion, says there is demand for three- to four-bedroom homes, starting at R2.6m, in security estates. The net yields for newly purchased properties range from 6% to 7% per year, with some areas exceeding the 10% mark over time. 

“For R750,000, you can get a two-bedroomed unit to rent out for R7,000 to R7,500 per month. For around R3m, you could find a house in estates such as Centurion Golf Estate or Midstream. These offer excellent value for money and are always in high demand, generally offering investors the potential for solid returns,” he says.

prime areas

East Lynnwood, Pretoria

Century city winners

In Cape Town’s Century City, a large proportion of the apartments are owned by rental investors. Helga Clemo, licensee for Seeff Century City, says the best rental returns materialise through two-bedroomed units around the R1.85m price range in sound lock-up-and-go security complexes like Villa Italia and Bougain Villas. You can expect a rental return of around R13,500 per month and about 4% to 6% on yield, on average.

If you have R1m to R1.5m to invest, some great options include loft apartments in Century On Lake for around R1.35m and a monthly rental income of around R9,500.

The city of Richards Bay is another popular area for buy-to-let investors. According to Catherine Chetty, rentals administrator for Seeff Richards Bay, the properties which offer the best returns include sectional title units priced between R700,000 and R1.2m. For the R1m to R1.5m price bracket, consider complexes such as Village Mews, Cormarrant, The Beach Dunes and Le Club in the suburb of Meerensee.

Sandton, Michelangelo Towers

Rental market status

The residential rental property market has remained resilient despite consumers’ financial stress. However, in the first quarter of 2023, the number of tenants in good standing declined in all provinces, according to TPN’s Residential Rental Monitor report. Waldo Marcus, Industry Principal at TPN Credit Bureau, attributes this resilience to high interest rates deterring potential buyers. Anticipated interest rate hikes are expected to maintain strong demand for residential property. Nevertheless, Marcus advises property investors to monitor consumers’ financial health and rental payment capabilities as rental growth improves. 

“Traditional market factors indicate that the residential rental market is buoyant with improved returns and lower vacancies. A further interest rate hike before the end of the year is expected to further deter property purchases and retain healthy demand for residential rental property,” he says. 

TPN’s data shows a three-quarter decline in tenants in good standing due to economic challenges affecting households. Additionally, TPN’s Squat Index, measuring tenants falling into non-payment categories, has increased in the past two quarters. Marcus notes that a decrease in credit good standing usually predicts rental payment rates. “Although overall sentiment in the sector remains positive, property owners must consider how a tenant’s late or no payment will impact them. Tenants classified as squatting pose a severe risk to the ability of landlords to collect and recover rental due. Landlords, therefore, need to act proactively and utilise the various legal tools available to collect the outstanding rental.” 

Mitigating risk

Moreover, escalations should be considered cautiously because of the pressure consumers are experiencing. “Landlords need to take advantage of the current market strength but bear in mind that there is an upward trend in the number of tenants classified as squatting. They, therefore, need to ensure that adequate tenant risk monitoring is implemented to mitigate the risk of an increase in defaulting tenants.”

The TPN report reveals the Western Cape’s tenants as the most committed to paying rent, while KwaZulu-Natal has the highest number of squatting tenants, rising from 4.67% in Q4 2022 to 5.09% in Q1 2023. Gauteng follows closely with 4.58% squatting tenants. Marcus emphasises that while lower vacancy rates and higher escalations are favourable, a successful property investment hinges on tenants’ rent payment ability.

“Early signs indicating that consumer credit repayments are slipping combined with lacklustre economic growth cloud the positive outlook for the residential rental market for the rest of the year. The current economic landscape means the risk of defaulting tenants is more likely, making proper background checks and vetting more important now than ever.

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