The growing numbers of buy-to-rent residential property investors were this week given some useful information on where the best returns can be obtained by Tony Clarke, MD of Rawson Properties.
Using data from his franchisees and the Global Property Guide, Clarke has compiled a table of rental returns in the popular and more upmarket areas in Johannesburg and Cape Town.
In Johannesburg, these are Dunkeld, Hyde Park, Houghton, Illovo, Inanda, Melrose, Parkhurst, Parktown, Parkview, Sandhurst, Saxonwold and Westcliff. In Cape Town Clarke selected Bakoven, Bantry Bay, Camps Bay, Clifton, Fresnaye, Green Point, Mouille Point, Hout Bay, the City Bowl, and the V & A Waterfront.
'What the table shows,' said Clarke, 'is that right now the smaller the unit (in any area) the better the return on it and, secondly, that Johannesburg rental returns are significantly higher than those of Cape Town'
This, he added, is in part due to the higher salaries paid in Gauteng and, as Rawsons Northern Region Director, Sean McCauley, has pointed out, to the serious shortage of rental stock in and around Johannesburg.
In the Johannesburg areas reviewed, a one bedroom apartment with, say 70m² of floor area will cost on average just under R800 000 and will on average give a rental of just on or over R10 000, i.e. by Clarkes calculations a yield of 15,35%. This reduces to 8,29% for a two bedroom apartment and 9,08% for a three bed apartment.
In Cape Town, the single bedroom apartment in the better areas mentioned will cost on average R1 521 884 but will garner a rent of only ±R8 991, i.e. it will give on average a return of just on 7%. This reduces to a paltry 2,63% on a large luxury three bedroom unit which will cost over R7 million but produces a monthly rental of only just over R20 000.
The same pattern, said Clarke, can be seen in house rentals. In Cape Town, their yields vary from 1,96% to 4,2% for two to four bedroom homes, the larger homes being the less profitable while in Johannesburg the returns are from 5,45% to 7,67%.
Clarkes survey also shows that, although Gauteng prices are rising on a square metre basis they are still far behind those of Cape Town '“ in many cases the difference is as much as 50%.
'This,' says Clarke, 'could be taken to indicate that Cape Towns upper bracket property is overpriced but the plain truth is that our agents are still negotiating sales at these levels because of Cape Towns special appeal and because, too, it is widely assumed, as our Chairman, Bill Rawson, has predicted, that Cape Town prices will continue to outperform those of Johannesburg'
'I myself predict a further 35% price rise in these more expensive homes over the next five years, with the increases in apartments and townhouses still being higher than those in freestanding houses'
As a final investment tip, Clarke advised investors to look for homes where the seller is 'distressed'.
'Sadly,' he said, 'there will continue to be many such and for the foreseeable future they are likely to trade at 10 to 15% below their genuine market value'
For further information contact Tony Clarke on 021 658 7100 or email tony@rawsonproperties.com.
