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According to data from Ooba, applications for investment property finance have reached a 15-year high. Typically, investment property finance applications make up about 4-5% of home loan applications. However, this figure has surged to 11.8% of national applications, representing nearly a tripling of demand for investment property finance.
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While the overall percentage nationwide has increased, the Western Cape has experienced a significant rise in investment property finance applications, with these now standing at just over 28%. This means that nearly one in three home loans applied for in the province is related to investment property.
Renier Kriek, MD of Sentinel Homes, says current data may be skewed by the lower participation of home buyers, who are hesitant about purchasing due to uncertainty surrounding the upcoming election, as well as the rising cost of living caused by inflation and high interest rates. This could make investment applications appear greater as a percentage.
“Even so, it also indicates that property investors remain confident, active in the market, and resilient regardless of economic pressures. Property investment may also be seen as more secure in the current uncertain political climate,” Kriek says in a statement released by the home loans company.
One factor is the ongoing trend of semigration, with South Africans moving to areas with better infrastructure and service delivery.
“This is especially true of the Western Cape where new property development lags the influx of semigrants,” according to the statement.
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“Many coming to the province now rent while searching for a new home or while theirs is being built.”
Another factor is the return of tourists to Cape Town, which remains one of the top holiday destinations in the world. Investors are purchasing prime properties that they can rent out as short-term leases and holiday accommodations.
The increased demand for rentals and the improved performance of rental properties, including lower vacancies and tenant defaults, are driving the surge in buy-to-let investment applications.
While the Western Cape’s statistics are particularly vibrant, the same cannot be said for Gauteng.
Kriel tells Moneyweb the demand for residential property in Gauteng has been impacted by semigration as well – but “in the opposite direction”.
“The rental market in Gauteng is not as robust as in the Western Cape, with vacancies and payment defaults more than the national average.”
However, Kriel says Gauteng remains the “powerhouse” of the residential property market, with 35% of residential properties located in the province, compared to 18% in the Western Cape.
Kriel also notes that the residential property market is currently attracting the “smart money”.
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“There’s pent-up demand, particularly among potential first-time buyers, characterising the current market climate. Astute investors and retail purchasers are seeking value amid reduced market activity.
“The decreased volumes are due to consumer uncertainty surrounding elections, sharply rising interest rates, and a recent period of relatively high inflation,” he says.
“Those who already own residential property, especially in the Western Cape, may expect a value increase when the dam of pent-up demand breaks, which is expected to occur with the first interest rate reduction after the election.”
This article was republished from Moneyweb. Read the original here
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