Tourism, migration, weak economy to boost added demand in Cape 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.

IN DEMAND: Camps Bay epitomises the Cape Town lifestyle.

“We have noted an uptick of about 20 percent 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 says.

“The coastal location, lifestyle, good governance and calendar of high profile events are key drivers of the rising demand that has resulted in luxury home rental rates in Cape Town surge well ahead of those in Johannesburg.

“Although 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 for long-term and short-term lets.”

Cape Town Tourism reported record visitor numbers over December and this has meant good business for the rental market, says 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.

“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 moving from other provinces, especially the northern areas, to continue and potentially even pick up pace this year. Many of these people choose to rent before deciding where they want to settle, 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 middle of the busiest season for especially long-term rentals. Aside from renewals, this period usually sees a major influx of people wanting to either move or get into their own places.”

He says there are still stock shortages in many areas and although this will may encourage owners to raise 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 experience difficulties in meeting rising rental rates. Yields are very likely to stagnate, even in the luxury market.

“Where rental yields improved over the past two years to as much as 7 to 10 percent, this is likely to come under pressure as the year progresses and we could see this dip to around 5 to 7 percent at best,” he says.

Seeff believes 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.

Areas such as the Atlantic seaboard and City Bowl and southern suburbs now command rental rates of about 30 to 40 percent more on average than Johannesburg’s wealthiest areas such as Sandhurst, Westcliff and Dunkeld, says Seeff.

According to the latest PrivateProperty data for example, the average monthly rent for a three-bedroom house in Sandton is R24 000 whereas 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 with an average rental rate of R11 500 for three-bedroom cluster homes. A similar home in Big Bay on the Blouberg coast achieves about R15 500 a month on average.

Clifton, Camps Bay, Fresnaye, Bantry Bay and the V&A Waterfront have the highest rentals in the country. Clifton now ranges to about R150 000 a month for a luxury apartment with direct beach access, and R200 000 a month does not look too far off, says Seeff.

Luxury homes in Camps Bay, Bantry Bay and Fresnaye now rent out for about R40 000 to R50 000 a month ranging to about R80 000 to R100 000 for a luxury home with sea views.

A two-bedroom apartment at the V&A Waterfront can achieve about R30 000 to R40 000 a month and a luxury unit on the Front Yacht Basin can go for as much as R45 000 to R80 000 a month during the high season.

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

Even in the western and northern side of the city rental rates have risen considerably, says Seeff. Where you could for example still find plenty of houses to rent below R12 000 a month two years ago, you can now expect to pay up to R40 000 to R50 000 a month for a luxury house with sea views in Bloubergstrand, Durbanville and Plattekloof.

Although the expected strong demand is good news for landlords, Seeff cautions 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,” says Seeff.


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