Short-term rentals in the Cape Town CBD and surrounding market show high return on investment

The Cape Town CBD and surrounding residential property market has shown substantial growth since 2011 and, with the Rand value of residential sales in the CBD more than doubling from R115 million in 2011 to R296m in 2014, it’s emerging as one of the city’s strongest residential growth nodes.

Apartments in the new Icon building on the Foreshore, within walking distance of the Cape Town International Convention Centre, are highly sought after and priced from around R1.895 million for a one bedroom, up to R7.995m for a 220m² penthouse. Properties in buildings such as these are increasingly being bought for their investment potential because of the high return of short-term letting.

“Most popular with investors are sectional title apartments which promise solid returns and many people are buying as a long-term investment,” says Brendan Miller, CEO of Lew Geffen Sotheby’s International Realty Atlantic Seaboard, which includes De Waterkant, the City Bowl, CBD and Foreshore area.

According to the Cape Town Central City Improvement District’s annual State of Cape Town Central City Report: 2014 A Year in Review, the average size of city centre units is 80.73m², with the average sale price last year R1.552 million or R19 227 m². Although, overall, apartments stayed on the market for an average of 109 days, 71.27% of those sold within 90 days and most in under a month, “demonstrating that well-priced residential units in the CBD continue to be snapped up”, says the report.

Miller adds that an emerging trend in the area is the shift toward short-term rentals rather than longer leases by investor owners due to the exceptionally high return on investment.

“The return on investment in these areas is higher than, for example, the Atlantic Seaboard, because property prices are lower and year-round corporate demand for accommodation means owners aren’t dependent the summer months to ensure occupation.”

He attributes to several key factors to year-round occupancy levels of more than 70%, including proximity to major businesses and headquarters in the CBD and Waterfront, as well as the continuous host of popular events which take place in Cape Town.

“Not only is the Cape Town International Convention Centre (CTICC) a constant source of tenants for upmarket accommodation in the city, De Waterkant and Canals precincts, but there also many regular attractions in town as well as several major sports events like the Pick and Pay Cycle Tour and the Two Oceans Marathon.”

“Occupancy is therefore almost year round and with the average daily rate of R1300 for a two bedroom apartment in low season and up to R2 700 in high season, you can see the value of this sort of investment.”

Although entry-level prices to the CBD area are around R1.2m, Miller says these properties are extremely rare.

”Properties in the next tier up, such as an A-Grade one-bedroom in a building like the Icon, are available for around R1.8m but they fly off the shelf. Two-bedroom units in good buildings generally start at around R2.5m and are also in great demand.”

Miller says other positive advantages of short-term lets in the CBD area include the level of clientele it attracts and that more regular maintenance inspections enable better upkeep of the property.

However, the days of just leaving keys with a relative, friend or estate agent are long gone and to optimise one’s investment and secure solid returns, Miller says that reliable property management services are essential.

“Landlords,” he says,” are increasingly opting to partner with a skilled and credible rental agency that knows what is in demand, in which areas and at what price.”

He says that when choosing an agent it is essential to look for one with experience in the rental market, knowledge of the area and especially one who will always put your interests first.

Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, says his advice to investors wanting to enter this market is to look at the newer A-Grade buildings which offer 24-hour security as well as other facilities, such as gyms and on-site restaurants.

“Having facilities at their fingertips means repeat business, especially from corporates,” Geffen says, “which has clearly been shown by the popularity of developments like Mandela Rhodes Place, the Icon, Harbour Bridge and The Adderley.”

One-bedroom apartments have proven the most popular for corporate travellers, and Geffen says that there is a simple formula for an excellent return in the CBD short-term rental market.

“A well-furnished apartment in building which is not only in the correct position but also offers tenants facilities and is managed by an experienced letting agent with a good online platform can almost guarantee you an excellent ROI,” he says.

“The knock on effect of the increased demand for residential property is the growing interest among developers to convert underutilised older commercial buildings in the CBD, and mixed-use commercial and retail developments in the area have mushroomed.

“We are seeing a great shortage of residential stock in and around the CBD, though, and the time is now for more developers to be looking at these opportunities.”

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