Residential Rentals Unaffected By Rates Cut
2/27/2012 4:40:47 PM
"The rate cut announced today by Reserve Bank Governor Gill Marcus will not affect the buy to let market, nor the residential letting market in any significant way." says Raal Nordin, founder of Only Rentals.
The main reason is that investor confidence is still way below the levels we would like to see. Landlords that lost money in the past few years will need more reassurance than a further small cut to boost buy to let again. Raal Nordin, king of residential rentals who placed residential letting into a structured format with the launch of in excess of 100 residential rental franchises domestically says "Landlords remain cautious as rental returns on higher valued properties are poor, some as little as 0,5% of the purchase value on a monthly basis."
This means a home that is purchased for R1,5 million will nett a rental return of only R7,500.00. The problem is not just in the actual rental return, but more in the capital appreciation side of residential property. Properties are not appreciating in value as rapidly as in the past and this trend will continue in the foreseeable future".
Nordin however places some confidence in the more affordable buying sector as these returns are far higher. "Properties purchased below the R 850,000 mark are achieving rental returns of around 0,75% monthly, and the top performers historically have have always been entry level apartments. Properties bought for around R500,000 to R600,000 mark are yielding monthly rental returns of over 1%, This translates to a property bought at R500,000 returning a R5,000pm rental with ease.
" The vacancy ratio of the lower end properties is minimal, as demand in this price range is enormous. Each Only Rentals franchise offices gets numerous calls daily from potential tenants wanting to rent in this price bracket. "If we had 100 vacant units at R5,000pm they would be let in less than a month" comments Nordin. Raal, who has been in property letting for 20 years is adamant that residential letting is very financially rewarding if a long term view is taken.
Property generally doubles in value every 6 to 7 years, but of course the Landlord should make use of the services of the best letting team, not necessarily the cheapest as most "losses" are often caused by unscrupulous agents who understand little of the intricacies of profitable property management.