If you’re looking for an investment opportunity in the residential market, it’s always critical to know which types of property are best performers. In South Africa, data reveals that one bedroom and studio apartments have been the best-performing for over 12 years. Investors who choose a one-bedroom apartment receive better returns than those who invest in a two or three-bedroom flat. However, more South Africans continue to purchase two-bedroom apartments despite lower returns.
One-bedroom apartments are entry-level choices for most young professional first-time home buyers, says CEO of Landsdowner Investment Properties, Jonathan Kohler. “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,” explains Kohler.
“Whether you’re a student, living away from home for the first time, a young professional renting your first apartment that you’re paying for yourself, a first-time homeowner or a first-time investment property buyer with buy-to-let aspirations, the one-bed-one bath is generally a good place to start,” says Kohler
To illustrate the different returns investors fetch from the different apartments, Kohler uses the example of two apartments located in the same complex in Johannesburg’s northern suburbs. If you buy a one-bedroom ground floor apartment for R740,000 (US $57,045), you can receive up to R7,000 (US $540) a month in rent and spend roughly R977 (US $75) on levies and R320 (US $25) on rates. You can expect this apartment to appreciate at 8% per annum, which means you could get a net rental return of 9.25% per annum, a remarkable overall return on investment of 17.25%.
On the other hand, a two-bedroom ground-floor apartment that costs about R980,000 (US $75,538) would bring you about R8,250 (US $636) in monthly rental fees. It would cost you R1,50 (US $127) and R420 (US $32) in levies and rates respectively – bringing you a rental return of 7.25% per annum and a total return on investment of 15.25%.