Monday, 1 July 2013

FNB - and buy to let news

So is buy-to-let the new way to go.

The on-going saga and lack of capital growth in the residential property market has made investment
in residential real estate so unattractive compared to the earlier part of the last years when house price growth were at much higher levels. Yields are also driven down by financially strained tenants and rising costs of maintenance, petrol, home goods etc, further stacking up an argument against investing in residential property unless you have a big daddy.

However, as more young South Africans require housing, there is a constant growth of demand for rental houses and flats. Ownership is not always possible or feasible and for some there will always be strong arguments in favor of renting instead of buying. This is aggravated further by challenges that banks face in granting credit - you better stay squeeky clean. These poor folk often have no other choice but to enter the rental market.

Should the SA reserve bank’s repo rate, and in turn the bank lending rates rise, the argument quickly tips in favor of renting rather than buying and is expected to further increase the demand for rental properties in the short term.

This rising demand for rental properties and slow growth in supply is expected to ultimately drive up yields to a point where buy-to-let property becomes a much more attractive investment. Once this excess demand pushes prices upward, investors will start earning higher returns. High returns will in turn attract more investors to participate in the rental market, buying up a larger portion of stock.

Risks of financing buy-to-let properties are not expected to change, but banks will continue to support this market with responsible lending to enable a much larger buy-to-let market tosupport the growing demand for housing in South Africa.

Buy-to-let ask your mortgage originator today.

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