Property Talk

It is essential to buy at the best possible price to ensure that you have the greatest chance of a profitable return. You could do a lot worse than spending the month of May on the Dolphin Coast, and if the last week's perfect weather is an indication, we can expect a blissful month ahead.

The first quarter has been particularly busy for our Seeff Ballito office and has provided every indication of the signs of a recovery in the residential property market. The overall consensus is that demand is up but pricing down. More transactions are being concluded but at lower prices. Good news for buyers but frustrating for sellers.

The March consumer price inflation (CPI) data was released by StatsSA and shows inflation remaining at 5,9%, just below the SA Reserve Bank's upper target limit of 6%. The residential rentals component of this CPI is currently 4,7%, which is still low despite a strengthening residential rentals market.

The acute shortage of available rental stock along the Dolphin Coast, which anybody who has been searching for a suitable rental property can testify to, is the first building block required for a sustained recovery in the buy-to-let market.

Rental prices have been bid up to such an extent that Simbithi rentals are now regarded as well above average and in many instances higher than similar properties within Zimbali.

Currently the overall buy-to-let purchases are only 8% of total purchases, which remains relatively low, considering that this figure was 25% in 2004. The Housing and Utilities CPI component includes the electricity component, which remains high at 10,2%.

The national electricity price regulator of South Africa (NERSA) did not however grant Eskom the requested price increases, which suggests that this inflation rate can be expected to come down. The Water and Other Services CPI component was also high at 9,2%. It has been these "administered" prices, including municipal rates, which has driven up the cost of property ownership so dramatically over the past few years.

Rental rates can be expected to increase and escalation clauses in new leases can be expected to default to 10% on average. I think the days of your typical residential rental only escalating by 5% per annum may be limited and resisted by many Landlords.

With the escalating cost of living being such a harsh reality for all of us, investing to hedge against this becomes a critically important decision. Buying an investment property in a high demand area is one of the proven best ways to protect yourself.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.