The buy-to-let squeeze: rent, rates & rising costs put the pinch on property investors

For many South Africans, getting onto the property ladder remains a long-term goal. But for those already building a buy-to-let portfolio, higher interest rates are tightening margins and leaving landlords with less room for error.

“Property can form part of a sound long-term investment strategy,” says Sherwin Govender, Business Development Manager at Glacier by Sanlam. “When you’re looking at long-term wealth creation, investing in buy-to-let properties can absolutely play a role, as long as your strategy is evaluated alongside other investment options and within a broader financial plan. The key is understanding the numbers before you make any decisions.”

With borrowing costs still in double digits (around 10.25%) and national residential property price inflation measured at about 5.8% in August 2025, a typical rental property now faces a far higher performance hurdle before it produces a meaningful return.

“Before you even talk about your properties and profit, your investment has to clear the interest rate,” Govender says. “Your rental income and capital growth together must beat your bond costs just to break even.”

Risk exists in far more places than investors realise
Property is often treated as a ‘safer’ investment option because it’s a tangible asset, but the risks, however, come in the form of immediate stressors: missed rent payments, rising rates, a higher repo rate, and even unforeseen maintenance bills.

“For most households, property is the single biggest asset they own,” Govender says. “That also means a large portion of their wealth is concentrated in one investment. Interest-rate risk is the most visible because when rates rise, monthly repayments can increase sharply. So, when rental income doesn’t automatically keep pace, investors are left funding the shortfall from their own salaries or savings.”

Tenants can pose a financial risk too, through things like non-payment of rent, or lengthy eviction processes. These can result in months without income, while the lessor’s bond repayments continue. Location risk adds another layer, as suburb desirability, municipal service delivery and crime levels can affect both demand and value.

The return hurdle is higher than expected
Stories of properties multiplying in value over decades remain powerful sources of inspiration for new investors, yet they often reflect specific market periods rather than a consistent outcome.

Property investors generally rely on two sources of return: rental income and capital growth. Both matter, and they have to work together. Govender says, “Current conditions require stronger performance from both rental and price growth.”

In many areas, rental yields sit at around 6%. Historical national property price growth has also been relatively modest, compared with popular perception. When combined, the total return can struggle to meaningfully exceed borrowing costs once tax and expenses are included.

“If your bond rate is around prime, the property first needs to outperform that before you’ve earned anything,” Govender says. “Then you still have inflation, tax and maintenance costs to account for. Many investors don’t run that full calculation upfront.”

Costs that eat into a rental income
“When you calculate the full cost stack, the yield investors think they’re earning is often quite different from the yield they actually receive,” Govender says.

Transfer duty, conveyancing fees and bond registration costs create a significant upfront outlay before the first tenant moves in. Ongoing levies, insurance and maintenance further reduce the net return, and capital gains tax applies when an investment property is sold.

And then there’s tax, which is frequently underestimated. The South African Revenue Service (SARS) views rental income as taxable. It gets added to a taxpayer’s salary and is taxed at their marginal income tax rate, which reduces the effective rental yield.

Harder to turn into cash…
Unlike listed investments, property capital can’t be accessed quickly, since accessing the funds requires putting the property on the market, finding a buyer and completing the transfer process.

Even in favourable market conditions this can take several months, limiting flexibility for investors who may need cash in a short period.

Despite that, Govender remains optimistic: “In practice, property remains a useful asset class, but only if your expectations, affordability and portfolio balance are aligned from the start.”