Those caught in the frenzy of buying flats off plan will soon know whether it was a good idea

"This year is the moment of truth," says property economist Francois Viruly, as investors take transfer of up to 8,000 newly built, high-rise flats in urban centres. The rents they get from their tenants will determine whether their investments sink or swim.

Some observers have been predicting a bloodbath, as falling rents and rising prices reduce rental yields to below those achieved in super-prime cities such as London and New York.

But first indications are that the reality could be more positive, as owner-occupiers take to high-rise living in a big way and low rents revive a national rental market that has been moribund for 30 years.

For the past 18 months developers and agents have been enticing buyers to "pre-launches" where, for as little as R10,000 deposit, they could buy flats "off plan" (before they are built) and pay later. Now "later" has generally arrived and thousands of investors swept up in the buying frenzy must pay up.

Nobody has been sure how many have bought properties to live in themselves, how many are speculators aiming for a quick profit, and how many are inexperienced investors.

Mutual Heights, with 100-plus lofts and flats, is the first of about 2,000 new units in Cape Town's CBD about to be delivered to their buyers. Pam Golding Properties letting chief Dexter Leite says he has 20 units to let at rents ranging from R3,500 for small lofts to R5,500 - R7,500 for two-bed units. "We have only started letting, so we can't assess market reaction yet," he says.

Up the road at Century City, all 445 units at the Island Club have been delivered to owners. Delivery starts in a few months of another 450 units in Villa Italia, to be followed next year by about 500 units in Knightsbridge. Century City spokesman Maggie Rowley says most of the buyers are owner-occupiers. She says about 65 speculators at Island Club have successfully resold at a profit and only 45 units are available for tenants. About 25 have been let at R3,000 upwards for one-bed flats and R4,500 upwards for two-bed units. "Investors are averaging 4%/year net yield," says Rowley.

In KwaZulu Natal, estimates Trafalgar CEO Neville Schaefer, 2,000 units will be completed in the La Lucia Ridge and Umhlanga Rocks area, and a further 600 are due at The Point. "Unlike Johannesburg and Cape Town, rents in Durban are firm," he says. "Our letting staff are confident the market will be supported by an influx of tenants into the area and by a trend among young Indians to move out of extended-family homes into their own accommodation."

Almost 1,000 units in the Sandton CBD will be completed by June this year and another 200 by December.

Available to rent in Sandton are about 150 units at Westpoint in Grayston Drive and about 200 in Summercon's Morningside Village Estates on Outspan Road. They were sold off plan earlier in the year and only 30% were bought for owner-occupation, says Jawitz letting director Damon Jawitz. There is rental demand, he says, "but tenants know there is an oversupply and they are negotiating rents down".

Limestone's Jarod Kolman, who sold and is renting out Westpoint, says tenants are readily available for two-bed units at R4 500/month and R3,000 for one-bed units: "The market is deep, with a lot of demand at this level."

Underpinning that demand are 45,000 commuters into Sandton's CBD who can now live close to work at bargain rentals. The oversupply could be mopped up in the next year or so, and rents could start rising again.

"Long-term investors know they have excellent properties and will bear lower rents for a year or two," says Jawitz. "Some speculators who bought off plan 18 months ago and can't get a decent rent will try to sell at a profit . They can also hang on if they have to.

"But there are buyers who overbought and overborrowed and they are the wild card in the market right now. We could have some distress selling."

But don't expect to pay less than the original selling prices, adds Kolman.

Financial Mail