There is an oversupply in the Cape rental market and this is pushing demand and prices down. Here's what landlords can do in this soft rental market.
A surge in sectional title development, penny-wise tenant behavior, and continued economic and political uncertainty are challenging Cape Town landlords, says Gail Cawood, Knight Frank letting manager. Rental prices have dropped by as much as 30% in recent months.
“There are several key factors at play in the current soft market. What’s the bottom line? We are experiencing an oversupply of sectional title rental apartments in Cape Town, pushing demand – and prices – down”, says Cawood.
Faced with an unprecedented and often alarming rise in apartment rental prices over the last 3 to 4 years, young and first-time tenants are forced to consider alternatives. Financially savvy, young professionals, whether single or coupled, are opting to stay with their parents for longer, or to share, co-habit or live in commune, says Cawood.
Furthermore, areas such as Observatory and Claremont have seen a surge of multiple sectional title developments, broadening the scope for tenants and offering opportunities to “scale down” to less expensive apartments. Cawood notices that tenants have also become more aware of their rights under the Consumer Protection Act. They are submitting to penalties, allowing them to opt-out of expensive lease agreements for the sake of longer-term financial benefit.
Since earlier this year landlords have responded by either waiting it out in empty spaces or by inviting and accepting lesser rental offers, Cawood continues. The latter response has now become the norm and the price drop is significant, up to 30%, with the Southern Suburbs, Atlantic Seaboard, and Hout Bay the areas most affected.
One year ago we were offering a two-bedroom apartment in the Southern Suburbs for R15 000 per month. Today this has come down to R12 000
The price of larger townhouses, above the R30 000 per month mark one year ago, has dropped to around R25 000.”
So what can Cape Town landlords do in a soft market?
- Be realistic when setting your monthly rental. Consider the price of similar properties in your area and if yours is more expensive, know why.
- Be as specific as possible in your marketing material and consider what your apartment or location has gained – bus route, corner deli, fibre, security – since you last advertised.
- Know your way around the Consumer Protection Act, section 14, which applies to fixed-term leases. Tenants have the right to cancel their lease, giving 20 working days written notice, provided that all the rent due, up to the date of the lease, the cancellation has been paid as well as a reasonable penalty.
- Consider concessions when your rental agreement is up for renewal. Why not keep a good, safe, secure and paying tenant happy?
- Do not underestimate the work that goes into finding a tenant and consider handing it over to the professionals. They have access to the research and the networks.
- Stay informed, acknowledge current trends and manage your portfolio in a realistic and responsible manner.