Many 25 to 35-year-old millennials would love to buy their own homes – but don’t have the earnings, steady jobs or credit records needed to qualify for home loans and so have no choice but to keep renting.
Others are still trying to pay back massive student loans and have no way to save up the deposits they would need, while some actually prefer to rent because it gives them more freedom to travel and be part of the “gig economy”, going from job to job or contract to contract in different locations.
“This explains,” says Gerhard Kotzé, MD of the RealNet estate agency group, why the millennials are often also called ‘Generation Rent’ – and why buy-to-let investors all over the world are increasingly taking note of them.
“In SA, for example, we know that the average age of first-time buyers has risen over the past 20 years from 27 to 35. This indicates that a significant number of young people are now staying in the rental property market for at least eight years longer than they used to.”
And the actual scale of the trend, he says, can be gauged from the fact that almost 20% of the total SA population of 55,9m people falls into the 25 to 34 age group – “with a further 24% in the 15 to 24 age group coming along right behind them to drive even greater rental demand in the future. (Statistics from UNFPA South Africa)”.
“What is more, the supply of rental properties is already running behind demand because there has been insufficient new development since the 2008 /09 recession. The latest numbers from StatsSA show that the number of plans passed for new housing units last year was 45% down on the number passed in 2007″.
“In addition, although 2016 saw a 19% year-on-year increase in the number of flats and townhouses built, the total number actually completed was only around 14 000 – and quite a number of these are now being absorbed by repeat buyers who are scaling down from larger homes, as well as buyers tapping in to the rising demand for stand-alone Airbnb units.”
In short, says Kotzé, those who have the foresight to invest in buy-to-let properties now stand to make an excellent return over the medium- to long-term, especially as it does not appear that interest rates and loan repayments are set to rise much more – if at all – this year before starting to decline again.
“Annual rental yields are set to rise and in many areas are in fact already higher than the interest one can earn on money in the bank, while capital values are set to show solid growth over the next five to 10 years as supply falls further behind demand”.
“Indeed, we believe that anyone who can muster the necessary deposit and buy a rental property (or two) in a high-demand location should do so without delay.”