“While different sections of Bardale Village have until now been marketed and sold in the traditional way of marketing residential property, institutional investors might be interested to know that at Bardale Village there are opportunities to buy blocks of units and even possibly adapt the designs slightly to suit their needs,” says Michael Bauer, managing director of IHPC, the estate agents at Bardale Village.
Bauer says that owning many units in one area and development makes sense for a property investor who invests in a large number of units, particularly at Bardale, where most of the residents fall into the category of tenants that are the best payers, said Bauer.
The TPN report of the first quarter of 2013 confirms, as it did before, that those who pay R3 000 to R7 000 in rent are the best payers (with 86% of them being in good standing).
“Considering that the units available at Bardale will be sold between R350 000 to R500 000 for one to three bedroom apartments, it makes sense to buy here if you’re buying to let,” he said.
This price category is the fastest growing but is also where the lowest supply is, he said.
“At Bardale at present there is an opportunity to buy about 496 sectional title units in one phase or in six apartment blocks, and rent them out at good returns from day one. Apart from the capital appreciation on the units, there is then the opportunity to sectionalise and split off sections to sell off as the investor wants to exit,” said Bauer.
“Holding properties over longer periods, however, would make sense as the rental returns are very good and will increase as time passes,” he said.
The average 50m² two bedroom unit at Bardale bought at R455 000 is renting out at a gross figure of R4 200 per month, which is about R80 per m², and an 11% yield on the investment (comparable with returns achieved in commercial property), said Bauer.
“The advantages to buying to let here is also that present, only 2% of the tenants here are defaulting, there is a stable, good paying category of tenant who wants to live here. They seem to be more financially responsible, living within their means and paying all of their accounts every month.”
Comparing residential property to commercial property, although commercial property has higher capital returns, there is usually a higher vacancy rate.
Residential property has the benefit of being a primary need, and with the undersupply still prevalent in many areas, certain categories of the residential property market will not be short of tenants, said Bauer.
Institutional investors might also look to commercial property because of the lease durations, said Bauer, but in today’s economic climate, long-term leases are not as secure as they were in the past. Many commercial leases now are around three years, as opposed to the five to ten year terms of the past. With the usual residential lease being one year (usually with automatic renewal option for a further year), it gives the investor the chance to adapt the price of the unit better to the changes in the market and deal with natural market fluctuations more easily.
“There are big pluses to owning blocks of residential property rather than commercial property, the key to success is the management and the tenant selection,” he said.
For further information on investment opportunities contact Michael Bauer on 083 255 4442 or email email@example.com.