Advice and Opinion

TPN statistics support the logic of buy-to-let investments

Recent reports from TPN (Tenant Profile Network) on the residential rental market help to explain why buy-to-let purchases have increased so significantly over the last year, says Bill Rawson, Chairman of the Rawson Property Group. 

“Summing up the TPN data,” said Rawson, “one fact becomes clear: investing in property for renting is not high risk. The typical South African tenant is a fairly reliable payer – and the risk is minimised by good tenant selection.”

The TPN report shows that in mid-2013 71% of South Africa’s tenants paid on time, 4% paid within the usual extra time allowed and 8% paid late. Another 11% paid, but not in full – and 6% did not pay at all, at least until coerced by legal or other action and/or the threat of eviction.

Reviewing these figures, Absa’s home loans division in their 2013 fourth quarter report, said Rawson, also mention that residential rental inflation did not rise significantly over 2013: it, in fact, averaged only 4,2% year-on-year for homes and 5,4% year-on-year for townhouses and flats — but, said Rawson, shrewd investors are achieving far better returns.

Absa also quote the TPN statistics which reveal that 23% of tenants are paying under R3,000 per month, 62% between R3,000 and R7,000 per month, 11% between R7,000 and R12,000 and 4% more than R12,000 per month.

“The TPN figures,” said Rawson, “should be encouraging to potential buy-to-let investors because they reflect the total rental situation countrywide. They cannot, therefore, be as bullish as the buy-to-let market.”

In this market, he said, four factors help increase the viability of the investment.

These are:

1.    The units bought for rent are carefully chosen and are often in prime, high demand areas where there is seldom any shortage of tenants. These, values and rents, rise well above the average rate.

2.    Rental agents are very active in the buy-to-let market and, being adept at investigating credit, previous rental and employment records tend to be efficient at eliminating potentially poor tenants. Investors’ returns on managed rental units are usually, therefore, better than the average. Such agents also tend to be good at seeing that tenants maintain properties properly.

3.    Conversely, the large number (48% of the credit active population) of people with impaired credit records results in many people, some of whom are high earning, having to rent, at least temporarily. This does much to reinforce the rental market.

4.    The banks today are more willing than they have been for some time to award bonds and tend to look with favour on investors with good buy-to-let track records.

“The logic of investing in residential property today seems to me undeniable,” said Rawson. “What is more, as I see it, the returns are likely to improve over the next 24 months.”

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