South Africa’s residential tenants are in the pound seats. Most are saving tens of thousands of rands a year by renting instead of buying, says Neville Schaefer, CEO of national residential property managers Trafalgar.

"Buyers today of two bedroom flats and townhouses almost everywhere are paying between R17 000 and R70 000 a year more than tenants for the same property," he says. This is despite rents continuing to rise faster than inflation.

Schaefer says he asked his staff in SA’s major cities to choose at random a few two-bedroom properties they manage and compare current rents to current values. They calculated the cost of owning by assuming 80 percent home loans on the present value and levies of between R1000 and R2000 a month. Although the survey has no scientific basis, he believes the results give a feel of the general drift of the residential property economy.

"Five years ago the rent on most properties was greater than the instalment on an 80 percent home loan and the levy," he says. "Today you can only achieve this in one or two inner city areas."

But he says owners should not be surprised: "Higher ownership than rental costs are normal around the world. We are merely returning to that normality."

Schaefer says tenants appear to be getting the best deal in expensive Cape Town suburbs. A two bedroom flat at Selbourne Towers in Sea Point rents at R5675 a month (up from R4500 in 2001), but the flat is currently worth R1.4-million and the monthly cost of ownership is R11 808.24/month. This means that the tenant saves R6133.24/month or R70 000/year. A buyer, he says, must get a minimum six percent capital gain this year to justify purchasing rather than renting.

Owners are getting the best returns in inner city Pretoria where, despite fast rising prices, rents are rising equally fast. The rent on a flat in Parkhill, Sunnyside has risen from R1700 in 2000 to R2750. Buyers have recently paid about R110 000 for two bedroom flats in the building, he says. This is a massive increase on the R12 000 Trafalgar’s client paid in 2001. "But a buyer today at R110 000 would still get R11 000 a year net income after paying an 80 percent bond and R1000/ month levy.

Size counts
The results of Trafalgar’s survey also indicate that the bigger the city the higher the yield. The lowest yields appear to be in Port Elizabeth where a buyer of a unit at Molsonder will pay R600 000 — more than five times the price of the Pretoria flat — for his flat, but will only get a rent of R2700; less than the R2750 rent in Pretoria.

"At the current rate of rental increase — about eight percent a year — it could take seven or eight years before some owners get a positive return from their purchases," notes Schaefer.

He says the differential between owning and renting will encourage potential buyers to rent and wait. This will soon start affecting the demand for rental properties and rents will start rising more quickly and will speed up the day owners get positive returns.

"But we are a rapidly normalising society and anywhere investors get a positive return is an anomaly unlikely to be seen again," says Schaefe