BUY-to-let demand in South Africa is expected to remain weak for some time, accounting for only 11% of overall residential buying in the second quarter compared with about 25% during the boom years.

According to the First National Bank (FNB) estate agent survey released on Tuesday, the number of buy-to-let transactions will continue to edge up gradually in the near term to more significant levels. Agents did not, however, expect any fireworks.

"Many aspirant investors are probably still waiting for higher yields and better capital growth prospects, rightly or wrongly, while the household sector also has significant financial pressure to deal with," said John Loos, property analyst at FNB.

"As a percentage of total buying, buy-to-let purchases are estimated by survey respondents to have edged up further to 11%, from 10% in the previous quarter," he said. "The increase in the percentage of buy-to-let buying is now starting to become more significant when measured from its low point of 7% through much of 2010."

However, Mr Loos said the figure remained weak compared with an estimated share of 25% in early 2004, at the height of the property boom.

House price reports released on Monday by FNB and Absa, two of South Africa's biggest mortgage providers, forecast price growth to continue to slow this year as the local and global economies weaken and with no indication from the Reserve Bank on whether it will lower interest rates.

The banks suggested prices would remain relatively low in the short to medium term as the economy was expected to grow at only 2,6%, after expanding 3,1% last year.

The average buyer's ability to afford a home has been diminished by big increases in household costs and banks' unwillingness to give large discounts below prime.

Analysts agreed that house prices were not expected to rise by more than 2%-4% in real terms this year.

Another factor making buy-to-let less attractive at present, though it remains a solid option for investors, is the mediocre performance of the rental market.

The most recent consumer price index survey from Statistics SA points to modest rental inflation, which, given house price inflation of 8,9% year on year, according to FNB, is likely to do little to increase the average yield on residential rental properties.

Koos du Toit, CEO of P3 Investment Group, said trying to "time" the property market, as investors in shares on stock exchanges do, was necessary only for those who speculated with property.

"Speculating - buying with the hope to sell again quickly at a significant profit - is not property investment," he said.

"For those who are investing in a home to settle in, or for those who are investing in a buy-to-let property to benefit from the monthly income and long-term capital growth it produces, the short-term fluctuations in the property market are not nearly as important as the length of time spent in the market."

He provided an example: "In the mid-'80s, you could buy a spacious four-bedroom house with a double garage for about R100000 and a two-bedroom flat for R25000. That same flat was selling for R400000 in 2005. If you had bought it in 1985, it would have been paid off by 2005, worth a whopping R400000 and producing a passive net rental income of R2500 per month."

Today, it would be worth closer to R500000 and produce rental income of about R3500.

"Had you known this in 1985, would you not have considered it a good time to buy, irrespective of the property price growth rate at the time?" said Mr du Toit.

mokopanelet@bdfm.co.za