Property Investment in SA: Buy-to-Let vs. REITs
Is Property Investment in SA still profitable? Johan Vorster compares the risks and rewards of traditional Buy-to-Let versus JSE-listed REITs.
The “American Dream” has a South African cousin: owning a rental property.
For generations, we have been told that property is the only “real” investment. We look at the skylines of Sandton or the expanding suburbs of Cape Town and think, “If I could just own a piece of that, I’m set for life.”
But the landscape of property investment in SA has shifted dramatically. With interest rates hovering at 15-year highs and levies rising faster than inflation, the traditional Buy-to-Let model is under pressure.
This brings us to the great debate: Do you buy bricks and mortar, or do you buy shares in the companies that own the bricks?
In this guide, we break down the mathematics, the risks, and the reality of property investment in SA, comparing the traditional landlord route against listed Real Estate Investment Trusts (REITs). If you are looking for a broader overview of asset classes, I suggest reading our foundational pillar: The Ultimate Guide to Investing in South Africa.
The Old School: Buy-to-Let Property
We all know how this works. You buy a flat or a townhouse, put a tenant in, and (in theory) their rent covers your bond. Eventually, you own the asset outright.
The Power of Leverage
The biggest advantage of physical property investment in SA is leverage. The bank lends you 80% to 100% of the money to buy the asset.
- Scenario: You buy a R1 million property with a R100,000 deposit. If the property value goes up by 10% to R1.1 million, your return on investment isn’t 10%—it is 100% (because you only put in R100k).
The “Hidden” Costs
However, the “passive income” myth is dangerous. Physical property is not passive; it is a part-time job.
- Transfer Duties & Bond Costs: Before you even start, you are down roughly R30,000 to R60,000 in fees.
- Maintenance: Geysers burst. Tenants damage cupboards.
- Vacancies: If your tenant leaves, you still have to pay the bond, rates, and levies.
- The Yield Trap: In many parts of Johannesburg and Pretoria, rental yields (what you earn) are often lower than the interest rate on your bond. This means you must “feed” the property every month from your salary.
Johan’s Analyst Insight:
If you are feeding a property R2,000 a month just to keep it, you aren’t an investor; you are a subsidiser. For Buy-to-Let to make sense in the current property investment in SA climate, you usually need a deposit of 30-40% to break even on cash flow from day one.
The Modern Approach: JSE-Listed REITs
A Real Estate Investment Trust (REIT) is a company that owns and operates income-producing real estate. When you buy a REIT on the JSE, you are buying a slice of shopping malls (like Mall of Africa), office blocks, or industrial warehouses.
Why REITs are Winning
- Liquidity: You can sell your shares in seconds on apps like EasyEquities. Try selling a house in seconds—it takes months.
- Diversification: Instead of owning one flat in Fourways, you own a piece of 50 buildings across the country. If one tenant leaves, you don’t feel it.
- Yields: Historically, South African REITs offer high dividend yields, often outperforming the rental yield of a residential flat.
- No Lawyers: No transfer duties. No conveyancing attorneys. Just a 0.25% brokerage fee.
The Downside
REITs are traded on the stock market, which means their prices fluctuate daily. If the market crashes, your REIT portfolio value drops on screen. With a physical house, you don’t see the price changing every day, so it feels safer, even if it isn’t.
Head-to-Head: Physical vs. Listed
To master property investment in SA, you must choose the vehicle that fits your lifestyle.
Real Estate: Physical Property vs. REITs
| Feature | Physical Buy-to-Let | Listed REITs (JSE) |
|---|---|---|
| Entry Cost | High (Deposit + Fees: R100k+) | Low (No minimum: R50+) |
| Liquidity | Very Low (Months to sell) | High (T+3 settlement) |
| Effort | High (Management) | Zero (Passive) |
| Leverage | High (Bank funding) | None (Cash only) |
| Control | Total (Pick tenant/paint) | None (Board decides) |
Tax Implications: What SARS Wants
Whether you choose bricks or stocks, the South African Revenue Service (SARS) will want their share.
Buy-to-Let Taxation
Rental income is added to your personal taxable income. You can deduct expenses (levies, rates, interest on the bond, agent fees) to lower this. When you sell, you pay Capital Gains Tax (CGT), though individuals get a R40,000 annual exclusion.
REIT Taxation
REITs are unique. They do not pay Dividends Tax (DWT). Instead, the payout is classified as taxable income in your hands. It is added to your salary and taxed at your marginal rate.
- The Hack: If you hold REITs inside a Tax-Free Savings Account (TFSA), that income is 100% tax-free. This is arguably the most efficient way to handle property investment in SA.
Johan’s Verdict: Which is Right for You?
The decision comes down to your capital and your patience.
Choose Buy-to-Let if:
- You have significant capital for a deposit (to ensure positive cash flow).
- You are handy with maintenance or have a trusted rental agent.
- You want to use the bank’s money to build assets over 20 years.
Choose REITs if:
- You are starting with smaller amounts (under R100k).
- You want true passive income without calls about broken toilets.
- You want instant access to your money in an emergency.
Don’t Wait to Buy Real Estate
There is an old adage: “Don’t wait to buy real estate. Buy real estate and wait.”
Whether you sign a title deed or click “Buy” on the JSE, the goal of property investment in SA remains the same: acquiring assets that pay you while you sleep. The market goes through cycles, but property remains a cornerstone of South African wealth.
For beginners, I strongly recommend starting with a REIT ETF (like the Satrix Property ETF) inside your TFSA. It is the lowest risk, most tax-efficient entry point. Once you have built capital there, you can look at the physical market.
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