Best areas for buy-to-let investments

According to the latest PayProp rental data, the rental market has not only recovered from the woes of the Covid-19 pandemic, but rental growth has hit the highest levels since 2017.

Market demand dynamics

At the same time, sales data from ooba also shows that buy-to-let investments now make up just over 10% of bond applications, and it appears to be on the up. While the Cape is often considered a great property investment destination, there are opportunities in most of the urban areas, especially in view of the growing influx of people looking for rental accommodation, according to the Seeff Property Group.

John O’Reilly, a rentals agent with Seeff Randburg, says the area is particularly popular and has a very dynamic rental market with huge demand. There are excellent opportunities for buy-to-let investors with apartments, townhouses and free-standing homes sought by tenants.

One and two-bedroomed apartments in the R 800,000 to R1.5 million bracket offer good rental returns. Also in demand are houses, both free-standing and those in complexes and estates in the R1.2 million to R2.5 million range, specifically in Randpark Ridge, Boskruin, Northcliff, Fairland, Linden, Weltevredenpark and Greenside, as these areas attract more long-term rentals which provide good long-term returns.

The average gross rental yield in the Randburg area varies between 8% and 12%. The net rental yield greatly depends on the condition of the property. O’Reilly says newer, well-maintained properties will get a better net yield, while properties requiring a lot of ongoing repairs and maintenance will not get such a great net yield.

If you are looking to invest between R1 million and R1.5 million, he recommends suburbs such as Linden, Northcliff, Fairland, Randpark Ridge and Boskruin. Investors must do their homework, though, inspect the property before signing and budget correctly, considering costs such as levies, rates, taxes and ongoing costs for repairs and maintenance and emergencies. Location is always an important factor.

Centurion is another dynamic rental market. Tiaan Pretorius, manager for Seeff Centurion, says that two and three-bedroomed units in sectional title complexes are most in demand. These are priced from R750,000. There is also good demand for three to four-bedroomed homes in security estates. These are priced from R2.6 million.

Investment returns

Net yields range from 6% to 7% per annum for newly purchased properties, with a few areas breaking the 10% range over a few years.

If you have R1 million to R1.5 million to invest, Pretorius recommends Eco Park, which offers good value. For R750,000, you can get a two-bedroomed unit, which could be rented out for R7,000 to R7,500 per month. For around R3 million, you could find a house in estates such as Centurion Golf Estate or Midstream, which offer excellent value for money and are always in high demand, generally offering investors the potential for solid returns.

In Cape Town, Century City is a particularly dynamic rental market, with a significant percentage of the apartments owned by rental investors. Helga Clemo, licensee for Seeff Century City, says the best rental returns tend to be two-bedroomed units in one of the lock-up-and-go security complexes. Unfurnished remains the most sought-after.

The price varies considerably depending on the complex. However, for a good return, you must shop around the R1.85 million price range. Good options in this price range include Villa Italia and Bougain Villas. You can expect a rental return of around R13 500 per month.

In terms of yield, you can expect, on average, around 4% to 6%, depending on your budget and if you are able to keep your property expenses down.

If you have R1 million to R1.5 million to invest, some great options include loft apartments in Century on Lake for around R1.35 million, which offer a rental income of around R9,500 per month. Prices vary, so it is best to consult with a local area specialist at Seeff to find out which properties achieve the best rental rates at the lowest buy-in prices in Century City. Rentals also vary depending on the complex and unit.

The city of Richards Bay is another popular area for buy-to-let investors. According to Catherine Chetty, rentals administrator for Seeff Richards Bay, the properties which offer the best returns include sectional titles priced from around R700,000 to R1.2 million.

In terms of yields, we usually advise clients that if the rental covers more than 75% of their bond, they are getting a good return, she says.

For around R1 million to R1.5 million, you could look at complexes such as Village Mews, Cormarrant, The Beach Dunes and Le Club in the suburb of Meerensee.

Ms Chetty says if you invest in buy-to-let real estate, you earn cash flow monthly when tenants pay the rent. Real estate is a tangible asset and continues to appreciate in value. The longer you hold it, the higher the value and the higher your return is likely to be.

Writer: Gina Meintjes