The Western Cape is leading the pack in terms of investment in buy-to-let properties across South Africa. MD at Sentinel Homes, Renier Kriek, shares some tips for those who are serious about investment buying.
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“We’re seeing a 15 year high in national investment applications, which rose to 11.8% of all applications by the last quarter of 2023,” says Renier Kriek, Managing Director at Sentinel Homes, who bought his first investment property at 19 and has been investing in residential property ever since. Usually, this figure is around 5%.
Kriek quotes recent ooba Home Loans market data which also puts investment applications in the Western Cape at a whopping 28.2% of total applications. “The housing demand in the province is enormous and property investors are obviously taking note,” says Kriek.
Home buyer hesitancy
Home buyers are hesitant to buy right now due to uncertainty around the upcoming election, as well as the rising cost of living caused by inflation and high interest rates. This could mean current data may be skewed by their lower participation, making investment applications appear greater as a percentage.
Even so, it also indicates that property investors remain confident, active in the market, and resilient regardless of economic pressures. Property investment may also be seen as more secure in the current uncertain political climate.
Demand for rentals
One reason is the ongoing trend of semigration, with South Africans flocking to areas offering better infrastructure and service delivery. This is especially true of the Western Cape where new property development lags the influx of semigrants. Many coming to the province now rent while searching for a new home or while theirs is being built.
Another reason is the return of tourists to Cape Town, still one of the top holiday destinations in the world. Investors are already snapping up prime properties they can rent out as short-term leases and holiday accommodations.
The increased demand for rentals and improving performance in rental properties, including lower vacancies and tenant defaults, is driving the wave of buy-to-let investment applications.
Tips for buy-to-let investors
Sentinel Homes offers some tips for people who are serious about investment buying:
Buy-to-let
When investing, always remember that the meat and potatoes of property is rental income, whether from long-term or short-term leases. Buying for speculative purposes, like fixing and flipping for a quick profit, is highly risky in a market where property prices outpace inflation and transaction costs can be excessive. So, research a property’s income potential and marketability first, then build a solid buy-to-let base first.
Consider rent-to-rent
Rent-to-rent means an investor rents a property, then sublets it to a third party at a profit. This is an excellent way to get into serious property investment without having to source capital for an outright purchase. You can use these profits to build capital and a strong property portfolio over time. Since some landlords prohibit subletting, find one that is flexible and negotiate your contract carefully.
Get market insights
Investors need good market statistics to make the best buying decisions. Properties are often priced above a fair valuation, which is why we have price inflation over time. Negotiating a sale below the asking price doesn’t necessarily mean you have bought a bargain – you may still be overpaying. While there are many good sources of data in the market, hiring a registered property valuer is also an excellent option. This can help you negotiate a fair price that will see you profit more when you eventually sell the property. Also, find out what a capitalization rate is, and use it in all your price assessments and lead follow-ups.
Property investment is a business
Lastly, see property investment as a business and run it as one, not a hobby. It demands strategic thinking, accounting, tax advice, professional management, research and more. “Every time I’ve seen a person make a blunder in property investment, it was because they didn’t manage their portfolio like a business,” says Kriek.
