Greater demand for rentals in Cape Town

Private Property South Africa
Press |
Greater demand for rentals in Cape Town

Tourism, migration and weak economy to boost added demand in Cape Town rental market.

Business and leisure tourism along with the continued migration of people to the Cape metro is set to boost the rental market while the weak economic outlook and resultant interest and cost hikes will be an added boost according to Samuel Seeff, chairman of the Seeff property group. Our group has seen an uptick of about 20% year-on-year in our rental business over the past two years and while overall sales volumes are expected to contract this year, rentals are expected to boom, he adds. The coastal location, lifestyle, good governance and calendar of high profile events are key drivers of the rising demand that has seen top end rental rates in Cape Town surge well ahead of those in Johannesburg. While the lower to mid-market sectors are likely to see the biggest jump in demand as a result of the economic fall-out, our agents expect a strong market almost across the board, not just for long-term rentals, but also for short-term lets.

Cape Town Tourism reported record visitor numbers over the December period and this has meant good business for the rental market, say Seeff. The tourist season is still running until the end of April for foreigners, but the annual Easter and school holiday influx of local visitors should keep the market active.

Add to this a busy calendar of major events, kicking off with the Mining Indaba and opening of parliament this week, he adds. Big sporting events such as the Rugby 7s and New Year’s cricket test at Newlands brought crowds to the city including a large contingent of the travelling British ‘Barmy Army’, most of whom needed accommodation. Next month, it is the Cycle Tour and Two Oceans Marathon, then the Jazz Festival in April and so on.

We also expect the influx of people relocating from other provinces, especially the northern areas, to continue and potentially even pick up further pace this year. Many of these people choose to rent for an initial period before deciding where they want to settle, obviously providing an added boost for the Cape rental market. Then, there is also the additional demand that comes from the corporate rentals market, says Seeff. We are now in the midst of the busiest season for especially long-term rentals, says Seeff. Aside from renewals, this period usually sees a major influx of people wanting to either relocate or get into their own place. Many areas are still seeing stock shortages and although this will no doubt encourage landlords to bump their income expectations, Seeff cautions landlords to be mindful of the worsening economic climate.

Affordability is going to be a serious draw-back for the rental market with especially low and middle income earners likely to face difficulty to meet rising rental rates. We are therefore likely to see yields stagnate, even at the top end of the market.

Where rental yields improved over the past two years to as much as 7%-10%, this is likely to come under pressure as the year progresses and we could see this dip to around the 5%-7% range at best, he says. Seeff believes that the Cape property and rental market is still in a healthy position and that there is more than enough strength to maintain good activity this year.

At the top end of the market, areas such as the Atlantic Seaboard and City Bowl and Southern Suburbs now command rental rates of about 30%-40% higher on average compared to Johannesburg’s wealthiest areas such as Sandhurst, Westcliff and Dunkeld, says Seeff.

According to the latest PrivateProperty data for example, the average monthly rental rate for a three bedroomed house in Sandton is R24 000 while it is around R41 000 on the Atlantic Seaboard.

The gap is similar when it comes to an upper middle class area such as Northriding that boasts an average rental rate of R11 500 for a three-bedroomed cluster. Comparatively a similar home in Big Bay on the Blouberg coast achieves about R15 500 per month on average. The top five suburbs of the Atlantic Seaboard, Clifton, Camps Bay, Fresnaye, Bantry Bay and the V&A Waterfront boast the highest rental rates in the country. At the top end, Clifton now ranges to about R150 000 per month for a luxury apartment with direct beach access. R200 000 per month does not look too far off, says Seeff.

Luxury villas in Camps Bay, Bantry Bay and Fresnaye now rent out for upwards of about R40 000-R50 000 per month ranging to about R80 000-R100 000 at the top end for a luxury home with stunning sea views. A two-bedroomed apartment at the V&A Waterfront can achieve about R30 000-R40 000 per month and a luxury unit on the Front Yacht Basin can go for as much as R45 000-R80 000 per month during the high season.

While you can still find a modest three-bedroomed house in the southern suburbs for around R30 000 per month, the average rental price for a luxury home in suburbs such as Constantia Upper and Bishopscourt now ranges to about R50 000-R60 000 per month with top end rates now reaching R100 000-R120 000.

Even the western and northern side of the city has seen rental rates rise considerably, says Seeff. Where you could for example still find plenty of houses to rent below R12 000 per month two years ago, you can now expect to pay up to R40 000-R50 000 per month for a luxury house with stunning sea views in Bloubergstrand, Durbanville and Plattekloof. While the expected strong demand is good news for landlords, Seeff also signals a caution that they will need to watch the market carefully and may well need to adjust their rental expectations. Bear in mind that unreasonably high rental rates may well result in financial losses, not only because tenants are going to battle to meet their monthly payments, but you may end up with legal costs and possible vacancy periods.

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