PROPERTY NEWS - According to Jonathan Kohler, CEO of Lansdowne Investment Properties, for over 12 years in the residential sectional title space, the one-bedroom apartment has been the best investment property performer, yet South Africans continue to buy two-bedroom apartments with lower returns.
“The thinking behind this is that two people could rent the property together or two people could perhaps purchase the property. However, this has simply not been the case and investors in this market are not reaching their maximum return. Investors looking to purchase a property must keep two of the key principles in mind – rental return and capital appreciation," says Kohler.
Entry-level apartment for tenants, owners
The one-bedroom apartment has traditionally been your entry-level property in the South African market.
“Whether you are a student, living away from home for the first time, a young professional renting your first apartment that you are paying for yourself, a first-time home owner or a first-time investment property buyer, with buy-to-let aspirations, the one bed, one bath is generally a good place to start.”
However, with the ever-increasing need for secure lifestyle estates, it has become more generally accepted that the studio or bachelor apartment has become your entry-level apartment for tenants and owners alike.
“The price point for both the studio and one bed, one bath apartments start from around R550,000 and go up to around the R1m mark which is the sweet spot in the property market,” adds Kohler. “The transfer duty rates are the lowest in this market, where properties purchased for R750,000 and less are transfer duty-free and properties purchased between R750,001-R1,250,000 are charged at 3% of the value above R750,000. So even if a purchaser invested in a property for R800,000, the transfer duty would be R1,500.”
Traditionally, property investors like to buy property off plan from developers, so they can save on transfer duty, however if investors remain around the R800,000 mark for a purchase, investors can often get better value in the second-hand market.
Rental return percentage
The rental return percentage is greatest on a studio or a one-bedroom apartment compared to two and three bedroom apartments, which is based on the rental amount.
The rental achievable for studio and one-bedroom apartments range from R5,000-8,500/month – dependant on location and positioning within the complex.
This rental price point constitutes the largest amount of quality tenants in South Africa. These are people who can afford to pay between R5,500-R8,500/month in rental.
