Home(less) sweet home?

In the recent lockdown past, many of our homes suddenly transformed from a two-bed apartment located somewhere in Bryanston, between work and the school run, into an office, classroom, and movie theatre, all rolled into one. The lockdown nudged us to reconsider our lifestyle choices, and this is in turn affecting the property market.

The market has seen a welcome post-lockdown bump, with new mortgage applications growing by as much as 49% in 2021, according to Absa. While absolute prices remain flat, the approved mortgage bonds are getting bigger. Home-loan specialist ooba reports that the average approved home-loan value rose 6.9%, to R1.33-million in the first quarter of 2022. So, what are people buying, and where?

Home-relocation specialist kandua.com reports that “semigration” (moving within the country, as opposed to moving out) continues, with the usual pattern of older folks leaving the bustle (and bucks) of Joburg for a more family-centred life in the coastal nodes. Traditionally, popular destinations tend to be Cape Town and Hermanus. Property-data expert Lightstone estimates that 43% of “out-of-province” movers are Gautengers shifting to KwaZulu-Natal or the Cape.

Many are choosing to give up the GASH (good address, small home) sectional-title property and getting a freestanding house with a garden in smaller towns such as Mbombela and Bela-Bela; even the Vaal and Parys are popping up on the radar. How are families structuring the financial aspects of second-home ownership if they decide to rent out their original homes?

Buying a second lifestyle property is a weighty financial decision, where one is taking on a liability that doesn’t produce cashflow in an environment where interest rates are rising. The lifestyle investor also needs to factor in the extra costs associated with running a second home, aside from the additional mortgage repayment, such as maintenance and property management while it’s not occupied. Renting out your former primary residence is a tough sell in the current market, which is characterised by flat rents and high vacancies. Supply has overtaken demand in the rental market, which means that tenants have more options. At the same time, rising interest rates (i.e., climbing mortgage rates) are leaving landlords with flat rental incomes out of pocket.

In addition, operating costs such as electricity and municipal rates are increasing faster than rental incomes. In terms of rental vacancies, the national average in the first quarter of 2022 was 10%. Some of the worst affected areas are in KwaZulu-Natal, at 13.26%, and Gauteng, at 8.69%. The Western Cape has the lowest rental vacancies, at 2.91%, according to the TPN Credit Bureau. Some popular nodes such as Fourways can see one in five units going empty for months as landlords chase a small pool of reliable tenants.

And while it’s tempting to think that you can put your erstwhile primary residence on Airbnb, upon deeper analysis the numbers often don’t stack up. The bed nights sold and the management effort required to sustain a meaningful cashflow mustn’t be underestimated. Urban Airbnb rentals in areas such as Sandton and Rosebank, which relied on corporate tenants or consultants working for corporates, were severely hit during lockdown, and have seen a significant drop in revenues.

So, enjoy your new home, but it might be a good idea not to rely too much on any hoped-for rental incomes just yet.

Kura Chihota is a realtor with eXp South Africa and hosted Ask the Property Experts on BusinessDay TV.