Buy-to-let market declines

THE buy-to-let sector declined to 7percent of total residential buying in the second quarter of this year, an estate agent survey revealed yesterday.

This was a two percentage point decline from 9percent in the previous quarter.

FNB property strategist John Loos said along with this decline, agent confidence in the near-term prospects for this segment of the property market also deteriorated in the quarter.

These results were revealed from the FNB Estate Agent Survey which is conducted quarterly.

"Despite the buy-to-let market not setting the world alight, agents nevertheless point towards some improvement in rental market fundamentals in 2010," said Loos.

"Noticeable is an increase in estimated average gross yield on rental properties according to the agents surveyed and thus a rise in the percentage of properties where agents believe that the rental income can cover 100percent bond payment," he said.

Loos said this was better news for those buy-to-let buyers that utilise credit, although such properties don't yet constitute the majority.

He said there could be a reason why there was no buy-to-let market improvement yet.

"(This is) Probably because a significant portion of the household sector is still under financial pressure following recession and has high levels of indebtedness to work off," he said.

Loos said he believed that many aspiring investors in this market focused more on capital growth than on income.

Loos gave some advice for anyone planning to buy property in order to rent it out.

If you stumble on property where 100percent of bond repayment can be covered by rental income - remember additional costs that must be recovered, including assessment rates (municipal taxes) and maintenance costs.

Tenants do not come without risks and the risk on default on rental payments is as much an issue for the landlord as defaulting on bond repayments is for banks.