Landlords Need Expert Help to Find Best Yield / Risk Balance

Ethekwini has been identified as the metro currently producing the highest gross annual yield* on residential rental property (8,9%), according to the latest FNB-TPN Gross Residential Rental Yield Report.

“This puts it well ahead of the national metro average of 8,34%,” says Greg Harris, CEO of Chas Everitt Property Rentals, and on the same level as Johannesburg. By contrast, the gross yield in the City of Cape Town is currently only 7,67% and that in Nelson Mandela Bay 8,23%.”

Further encouraging news for those contemplating a buy-to-let investment in KwaZulu-Natal, he says, is that the percentage of tenants in the region who are in good standing has been improving and now stands at 82,32%, according to TPN’s most recent Residential Rental Monitor.

“This report puts the national figure for tenants in good standing, which includes those who paid on time and in full and those who paid late but in full, at 82,17%, so KZN is now a little ahead of that, although it is not doing as well in this respect as the Western Cape (87,94%), the Eastern Cape (87,48%) and Gauteng (83,89%).”

In short, Harris says, the figures show that where there is a higher risk, represented by a lower percentage of tenants in good standing, landlords can generally expect a higher gross yield on their buy-to-let investments – and vice versa.

“More detailed analysis of the TPN figures shows, for example, that while lower income areas with an average home value below R600 000 offered a median gross yield of 8,83% during the first quarter of this year, homes renting for less than R3000 a month (most of which fall into the low income areas) only had a ‘good standing’ percentage of 78,7%.”

But it is important to note, he says, that this correlation does not always hold true. ““As can be seen from the accompanying table, yields in the top two categories are currently not compensating landlords for the higher risks of non-payment in these categories, and investors can expect to find the best balance between risk and yield in the lower middle and middle income area bands, where most rentals fall between R3000 and R12 000 a month.

“In addition, potential yields are affected by rental trends and many other circumstances that vary from city to city and even suburb to suburb, so property investors really should seek the advice of expert agents who specialise in residential rentals before committing to any buy-to-let purchases.     

*Annual gross yield is calculated by dividing the total rental income for the year by the total purchase price of the property. Thus gross yields increase when rentals rise, or when rental inflation is higher than property price inflation.

Yield v Tenant Risk, first quarter 2016 (See Table)

Issued by Chas Everitt Property Rentals
For more information contact 
Greg Harris on 082 414 7490
Or visit www.chaseveritt.co.za