The property markets of mining towns around the world have gone from boom to bust in the past year as a result of the slump in commodity prices, with most now having a serious oversupply of real estate that is driving both rentals and purchase prices down.
“And resource-dependent towns and provinces in SA have not escaped the decline,” says Andrew Schaefer, MD of leading national property management company Trafalgar, “although the weak currency has softened the effect somewhat by boosting the rand value of gold and other precious metals”.
“The high local demand for coal to keep up electricity production at SA’s old and new power stations has also helped, but new mining ventures, exploration projects and infrastructure builds have nevertheless been put on hold in many parts of the North West, Limpopo and Mpumalanga,” he says.
“Existing mines and processing facilities have also scaled back operations, and many towns that used to have waiting lists of incoming mine employees and contractors clamouring for accommodation now have large numbers of empty rental units – and declining rentals.”
This is clearly reflected, Schaefer says, in the latest Residential Rental Monitor released by specialist credit bureau TPN, which reveals that the average rental in Mpumalanga, for example, showed a year-on-year decline of 1,58% in the third quarter of last year, compared with an increase of 7,04% in the same period of 2014.
“Similarly, the average rental in the North West showed a year-on-year decrease of 6,92% in the third quarter, compared with an increase of 10,56% in the same period of 2014, and the average rental in Limpopo showed a year-on-year decline of 11,12% compared to an increase of 9,2% in 2014″.
“Consequently, even though mining areas have some of the highest rates of tenants in ‘good standing’ for paying their rent on time and / or in full, we believe they are increasingly risky choices for buy-to-let investors, with the exception perhaps of the Northern Cape, where a lack of infrastructure has prevented the creation of an oversupply of rental units.”
By contrast, he says, rental property investments are looking increasingly attractive in the Eastern Cape and Western Cape, where average rentals are still showing annual rates of increase higher than the national average of 5,1%. According to the TPN figures, the year-on-year rate of increase in the Eastern Cape was 6,9% in the third quarter of 2015, and that in the Western Cape 7,85%.
“According to the TPN figures, the percentage of tenants in ‘good standing’ in both these provinces is also higher than the national average of 84,7% – at 88,7% and 88,5% respectively.”
As for the type of property to buy as an investment, Schaefer says, all indications are that these should be apartments or sectional title townhouses in secure complexes that will generate a good return at rentals of between R3000 and R7000 a month.
“The TPN statistics show that 59% of tenants in SA currently fall into this rental range, which means that owners of such units are assured of good demand, boosted by increasing urbanisation and the growing trend in the major metros towards secure living in smaller homes”.
“This is also one of the better rental payment categories, with 86,1% of tenants currently in ‘good standing’ and 71% paying in full and on time every month.”