Cape Town rental market update

The rental market in Cape Town is in a state of flux at the moment, and tenants are possibly in a better position when it comes to value for money and the choice available to them, than ever before, says Michael Bauer, managing director of property company SAProperty.com.

“The first possible reason for this is that many investors bought property purely to rent out as short term lets because of the rising popularity of AirBnB or other DIY holiday accommodation websites. However, they have since realised that it’s not as easy to make money from this type of rental as it first was made out to be. Short-term lets often create a high volume of administrative work and are often higher risk rentals than long term lets. It also very much depends on the number of tourists in Cape Town,” says Bauer.

In addition, many bodies corporate and home owner associations dislike short-term lets because of the security risks they might pose and the higher number of people who have access to their building.

Now, many landlords have put their units back on the market as longer-term rentals, which has created an increase in the number of units available.

Add to this, many potential tenants are struggling financially, and simply cannot pay high rentals, and this is forcing landlords to reconsider the amount they let their units for.

“It’s simple economics: supply and demand laws will dictate market price and many landlords are having to reassess their expectations of their investment portfolios,” says Bauer.

Looking at the TPN Residential Sector Vacancy Survey for the fourth quarter of 2018, figures show that there is a declining trend and this report says:

“The national supply rating has increased marginally from 64.7% in 2018 third quarter to 66.4% in 2018 fourth quarter. This increase along with a slight decline in the national demand rating from 63.1% in 2018 third quarter to 61.8% in 2018 fourth quarter results in a deteriorating market strength index of 47.7% in 2018 fourth quarter.

“With the market strength index now officially below the equilibrium level of 50%, one could argue that tenants now have the upper hand when it comes to negotiating rental agreements.”

Figures show that the market has changed quite dramatically in the Western Cape from a high of around 85% in the first quarter of 2016 to a figure of 46.9% in the fourth quarter of 2018 according to the same TPN report.

“Investors will have to reconsider high rental increases this year, or perhaps not increase the rentals at all if they have good tenants who pay in full and on time and who look after the property. It is, after all, better to have a tenant paying a slightly lower amount than to have the risk of the property standing empty for a time while looking for a suitable tenant,” advises Bauer.

SAProperty.com offers a comprehensive rental property management and letting service. Visit https://www.saproperty.com/rental-property-management.