Communications with Jacques du Toit, the highly respected property analyst of Absa, has led Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, to expand on an earlier statement that he made to the effect that buy-to-let investment is surprisingly low in view of the way residential property rents are continuing to climb.
“It has to be confessed,” said van Alphen, “that, as Jacques has pointed out, the costs related to property – rates, taxes and maintenance – have escalated dangerously. We also have to accept the fact that house price growth is less than half what it was in 2002 to 2006. These facts do take much of the glamour out of the housing market and have led to a significant drop in buy-to-let investment.”
“Nevertheless,” said van Alphen, “as Absa have also pointed out, high levels of household debt (recently recorded at over 70% of disposable income) coupled with the National Credit Act’s wise but very stringent provisions, which thoroughly examine the debtor’s true income and his credit record, will continue to limit the number of bond awards.”
“This, in turn, I believe, will increase demand for rentals, particularly in the lower price brackets, and ensure that rents rise year-on-year fairly steadily in the foreseeable future. It is this belief that makes buy-to-let property a viable proposition and one which is particularly well suited to less experienced investors without a real understanding of the JSE Securities Exchange and the money market.”
Van Alphen said that his comments in favour of buy-to-let property cannot be applied across the board – each investor, he said, must ‘do his sums for himself’. However, he reaffirmed that he remains convinced that in a volatile economy, such as South Africa is at present, with no signs of a powerful economic recovery, property is the asset channel in which cautious investors should be putting 20 to 35% of their assets.
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