With interest rates starting to drop, now may be the ideal time to consider a buy-to-let investment, says Bradd Bendall, BetterBond’s National Head of Sales. “When it comes to buying a home, whether to live in yourself or rent as an income-generating investment, affordability is always a concern.” After months of high interest rates, many potential buyers have been forced to rent, rather than buy. As a result, there’s been an increased demand for rental properties, particularly in areas close to employment and educational opportunities.
“Although the September drop in the prime lending rate has brought some welcome financial relief to consumers and homeowners paying off their bonds, it will be a while before we see a surge in buyer activity. According to the latest (October) Property Brief, the number of home loan applications declined by 31% since the third quarter of 2021, although this did follow a bumper period where home loan applications increased by 43% in the two years prior,” says Bendall.
Payprop notes that rental demand continues to grow, with StatsSA reporting that almost a quarter of the 19 million households in the country live in rented accommodation. “With this in mind, those with the financial means to invest in property have considered buy-to-let home loans as a long-term financial decision,” adds Bendall. “We are hearing anecdotally from our estate agent partners that younger buyers are investing in new developments or properties below the R1.1 million threshold so that they can rent them out to generate an income, while they themselves live in rental properties. In this way, they gain a foothold on the property ladder and generate a passive income while enjoying the flexibility of renting. It may be that they see investment potential in a particular residential area, but they choose to rent a home that is closer to their work.”
The Absa Homeowner Sentiment Index for the second quarter of the year reports high confidence levels among respondents of now being the right time to invest in property. At 80%, the investment sentiment is at the highest it has averaged since 2021. “Many of the respondents cited the resilience of the property market and its proven potential for appreciation as reasons for their decision to invest,” explains Bendall.
Not all provinces are equal when it comes to the return on investment for buy-to-let properties. Semigration and the demand for coastal living makes the Western Cape one of the prime buy-to-let property markets, says Bendall. “As noted in PayProp’s Q2 report for 2024, rentals in this province have increased by 9.7% year on year.”
While a buy-to-let property does offer a potential income, it does also require careful consideration, he cautions. “Rental properties need to be managed, and this includes dealing with tenants, maintaining the property and responding to emergencies such as burst geysers. Be sure to factor these costs into your financial planning when you apply for a buy-to-let home loan.”
On the upside, some of the banks include future rental income into the affordability calculation, which can also contribute to a positive outcome in the approval process. Added to that, buy-to-let investments have tax benefits. For example, deducting the interest on your bond from your rental income will reduce your tax liability.
However, Bendall emphasises that paying off a buy-to-let home loan at the current prime lending rate, regardless of future cuts, will save a substantial amount in interest on the loan, and could also shave months off the loan repayment period. “If you have the financial means to buy a property now, make the most of this period when rental demand is still strong enough to make a buy-to-let property a sound investment.”
