Buy-to-let remains a very sound investment choice.

A fair number of potential residential property investors at the Cape have become cautious and hesitant, says Rowan Alexander, a director of Alexander Swart Property.  However, he adds, their fears are by and large groundless and due more to uncertainties regarding our political future than to economic realities.

“The dynamics of buy-to-let have changed but the value of this type of investment remains as good as ever,” says Alexander.  “Anyone reviewing the performance of buy-to-let residential properties in the last five years – one could almost say the last 50 years – will find that this has been an asset class that has been consistently satisfactory and this is particularly true in the Brackenfell area where the 500 new homes sold by ourselves between 2011 and 2016 (when we were operating under another name) have had a 10,2% per annum average capital appreciation).”

For much of that five year period, says Alexander, investors did particularly well out of properties which rented out at ± R15,000 or even more per month, although less expensive properties also performed well on the rental market.

Now, he says, those who follow the trends in property are switching their focus to properties renting at under R10,000 or R12,000 per month – and they are doing equally well, if not better, in this market.

“With the country in recession and wage increases not as generous as they were, the demand for lower price rentals has burgeoned,” says Alexander.  “In this sector we now have a rental supply shortage, which of course makes units here, i.e. those priced from R 800,000 to R 1,600,000, an excellent investment with an assured income flow.”

The ideal investment in the Brackenfell area today, he says, is a two bedroom apartment bought for ± R800,000 - R1million and renting at R6,500 to R8,500 per month, an annual rental escalation of 8% to 10%.

Today’s buy-to-let Brackenfell investment market, says Alexander, suits a fairly large body of potential investors who wanted previously to get into this asset class but were unable to afford the more expensive properties which previously attracted the most demand.

“The new market is less expensive but just as robust,” says Alexander.  “What many investors find especially attractive is that if, say, they buy a R940,000 home of the kind now proving so popular and can manage a 20% deposit, their rents will cover their mortgage payments from day one.

“Even if they take out a 100% bond on such a home they will have to pay in an additional R2,500 per month for only ± 36 months.  By the end of their first year, therefore, for a total investment to date of R120,000, a figure which includes the ancillary costs of the purchase, they will have acquired an asset worth R1 million, which from then on will be largely self-supporting, will be paid off in 15 years and requires no further financial input other than repairs and maintenance.  It is no wonder, therefore, that shrewd investors are now putting at least one-third of their capital into buy-to-let residential property.  The returns here are, we have found, often better than those given by major pension funds.

“When after a few years of regular rental increases the rents become significantly bigger than the monthly bond repayments, many dedicated investors continue to pay the full rents collected into their bonds – and this practice usually results in their paying off their bonds in eight to ten years.

“Buy-to-let residential property in most parts of South Africa, but especially in Brackenfell, therefore, says Alexander, “is an exceptionally sound and safe investment choice.”