Everyone who buys a residential property is a dreamer. You dream of owning your own home; a place where you can settle down and raise a family and have your friends over for a braai to watch the rugby or soccer on a glorious summer day.
It’s the ultimate middle-class dream: to become a property owner, owning an asset, that over time — using the magic of gearing — will build your wealth and provide you with enough capital for the next step up the property ladder into something bigger and better.
And if you really want to dream big, you buy additional properties, again using gearing, to rent out to someone less fortunate than you who will then pay off your mortgage bond(s) over ten or 20 years, and presto: you are a rent-collecting landlord.
It looks so easy on paper. You even attended one of those buy-to-rent investment seminars where some guru with an American accent comes to tell you how easy it is. Or possibly one of the locally-grown copy cats who got onto the band wagon. What could possibly go wrong?
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On average property prices in real terms are now down 23% from its peak at end 2007 and prices in certain areas are starting to show declines in nominal terms as well. Our banks must be watching this development with great foreboding.
Rental collections also tell a story of a market slowly imploding. According to the fourth quarter 2016 survey (the latest available) done by Tenant Profile Network, both vacancies and non-payers are still rising. In this quarter, which therefore does not reflect the impact of the credit downgrades in April, national vacancies are 6.62% which, when added to the non-paying number, reflected no income for property owners equivalent to 12.4% of all property owners in this market. For the upper-end (R12 000 to R25 000 per month) this combined number rises to 15%!
Again, it needs to be added, the Western Cape is the exception. Tenants pay mostly on time and rentals are still rising as a result of very few vacancies.
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