Here’s Y buy-to-let should be booming
Generation Y is rapidly also becoming known as “generation rent” in property circles, and bolstering the prospects for buy-to-let investors in the process.
“Many members of Gen Y, most of whom are still in their 20s, would like to take advantage of the current low interest rates and buy their own homes, but they are often too weighed down by student loans, other debt and a lack of savings to do so right now,” says Berry Everitt, MD of Chas Everitt.
He adds that others are simply not ready to settle down, preferring to rent and have the freedom to travel and try out different jobs or work on a series of contracts.
And, either way, the trend is positive for buy-to-let property investors.
The average age of first-time buyers in SA has shifted in the past 20 years from about 27 years of age to 35, which means that a significant number of young people are staying in the rental pool for at least eight years longer than they used to, and it explains in large part why the demand for rental homes in this country keeps rising.
Everitt says this demand has also been boosted since the 2008/ 09 recession by homeowners who have had to sell their properties to relieve financial pressure, and have been unable or unwilling to buy again.
“And the pressure on supply continues to grow, because there has been so little new housing development in the past five years. Last year, according to StatsSA, only about 43 000 new houses, flats and townhouses were built in the whole of SA, with its population of some 52-m people.
“In short, everything is in favour of buy-to-let property investors now, so it is somewhat surprising that they currently only account for about eight per cent of the total number of property transactions.”
Previously almost a quarter of all purchases were being made by buy-to-let investors, even though interest rates were way higher than they are now, and even though there was an oversupply of rental stock and it was a struggle to find and keep tenants.
Everitt adds that real capital growth has been slow since 2007, and that the economic difficulties that have affected homeowners have also affected tenants and kept a lid on the rental increases they could absorb.
“However, with interest rates at their lowest in almost 40 years and the demand for rental accommodation set to keep growing, the current market is offering some outstanding opportunities and we think there really ought to be more excitement now about buy-to-let investing.
“Annual rental yields are rising and are already significantly higher in most areas than the interest one can earn on money in the bank, and property value increases are starting to get ahead of inflation once more.”
Consequently, anyone who can muster a 20 or 30 per cent deposit and buy rental property in a good location right now stands to make an excellent return on their investment in the medium- to long-term, and certainly a much better return than those who wait until buy-to-let investing is “in fashion” again.
