Areas and Places

Buy-to-let investors getting 22 % annual returns on Brackenfell homes

The Westmont, the latest offering currently being developed by Trinity Projects.

In the last three years the Rawson Property Group’s Brackenfell Roslyn franchise has been selling as many as ten new homes per month in the security villages which this front-running team market on behalf of a combination of developers in Brackenfell. Rowan Alexander, who is the Sales Manager for the franchise, said that three years ago 90% of the buyers in these developments were owner-occupiers. In the last six to 12 months this franchise has noticed a remarkable upswing in the number of investor buyers, i.e. those buying to let.

These days, said Alexander, investors comprise about 40% of all buyers in these new projects.

“In talking to these investors,” he said “I have noticed that a complete change in mindset regarding properties of this type has come about. A few years back they saw them as unexciting, not particularly lucrative safe havens. Today they see them as one of the best investments available on the market.”

This attitude, said Alexander, is wholly justified by the figures generated by such developments.

A year ago a typical three bedroom with a double garage in a new security estate sold for R1,350,000. Today only 12 months later the price tag would be R1,5 million. This means that such homes are appreciating at 11% per annum, a significant capital gain by any standards. In addition to this, however, the investor will of course be getting rent – in this case at R13,500 per month. This means that from early on the investor’s rent will probably cover his monthly bond payments (depending on the size of his deposit) and the overall return after, allowing for taxes, levies and agent’s fees will again have been 11%.

The whole picture looks even rosier if one takes into account the important fact that most of those investing in this way are doing so with the help of a bank mortgage loan. Typically, said Alexander, on the sort of home he has described, the investor will put down a deposit of about R200,000. This means that if, say, he decided to sell two years after purchasing the property (at R1,650,000) he will, in fact, have had a return of 150% on the capital he has actually outlaid. Not surprising, therefore, said Alexander, many investors working along these lines take out bonds on three, four or even five homes.

Most investors in these very popular Brackenfell developments, added Alexander, are in it not just for two years but for longer periods, for possibly five to ten years, and they anticipate that their profits will increase each year.

Is this confidence justified? Can capital appreciation over a long period be reasonably expected?

“That is a matter on which it is impossible to be categorical,” said Alexander, “but what can be said with complete assurance is that as long as new homes are coming off the production line, prices will escalate for the simple reason that contractors cannot avoid material and labour price rises and in most economic circumstances these will run ahead of inflation. In fact in the last two years construction prices on the projects we have been handling have risen 6% every nine months and price increases of this size inevitably have to be incorporated in the sale price.”