Recent reports from residential property agents working in South Africa’s big cities, Johannesburg, Durban and Cape Town, show that rental rises have often been way ahead of the current inflation rate and often, too, as a percentage well ahead of house price rises, which are now not as spectacular as they were a year ago.
Rentals today, said Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, are increasing faster than he can ever recall in the 45 years that he served in the home loans sector.
“According to one report, studio apartments on Cape Town’s Atlantic Seaboard are now renting at R7,000 to R9,000 per month, one bedroom apartments at R8,000 to R10,000 and two bedroom apartments from R9,000 to R22,000 – and elsewhere the figures are much the same.”
While this is good news for buy-to-let investors, whose numbers are increasing rapidly, said van Alphen, it should be causing South Africa’s diehard inveterate tenants serious concern.
“In the bond origination sector we regularly come across individuals who have literally grown up accepting that they will probably rent all their lives. All the long term implications of this have escaped them and in particular we find that they have no made absolutely no provision for accommodation once they have stopped being wage earners – and attitude is far more widespread than most people realise.”
Many dedicated tenants, said van Alphen, have at some stage actually considered buying a home, but have shied away when confronted with the need for a 10 or 15% deposit as well as bond registration and transfer costs. (The last two on a R900,000 bond will, for example, amount to R42,400, i.e. some 5% of the total cost if a 10% deposit is found.)
Confronted with these costs and comparing them to the rentals they pay, said van Alphen, many tenants take the easy option to continue to pay rent. This, in effect, he said, means that they are usually helping some other investor – not themselves – to become a property owner and in the current low interest rate scenario, the tenant will very often help to pay off the investor’s loan surprisingly quickly.
Dedicated tenants of this kind, said van Alphen, should contact a reputable bond originator and with his help set about replanning their finances. As a first step, if they have debits or impaired credit records, they must pay these off and put matters right with their creditors. Then they should sit down with a bond originator and work out just how much they can save if they put their minds to it.
“Our experience as consultants,” said van Alphen, “shows that with a little restraint and a little austerity, savings can be achieved and within a relatively short space of time the aspirant home owner can qualify for a bond loan. We have helped many people to achieve this in under a year to 18 months.”
The amount for which the bond applicant will qualify, said van Alphen, may well be smaller than originally anticipated and initially therefore they may have to settle for a less attractive home in a less convenient area than their current rental accommodation. However, the satisfaction of being on the property owning ladder at last will usually outweigh these difficulties and in five to ten years’ time, if the bondholder has had a regular income, it is likely that he will be able to upgrade to a better house without increasing his monthly bond repayments.
Asked if these comments apply to first time home buyers, van Alphen replied, “Yes, definitely”.
“First time home buyers, although doing surprisingly well in the current bond market, have often waited far too long before taking the initial step to become home owners,” he said.