Cape Town - Security remains a paramount requirement in the South African residential rental market, according to Dexter Leite, Pam Golding Properties' manager for rentals in the Cape Metro region.
There is a continuous and ever increasing demand for rental properties in all rental categories, nationally, according to Leite.
"The market is very active and area, as well as demand driven by proximity to schools, the work place, lifestyle and life stage," Leite told Fin24.
There remains an acute shortage of rental properties in the affordable price categories. This also applies to different categories in different suburbs or areas.
There is a high demand for student accommodation in the traditional tertiary learning nodes.
Another trend he pointed out is toward smaller, compact homes.
Renewing their leases
"This is because these are more affordable and more economical to maintain in security estates or lifestyle type apartments with mixed residential retail and lifestyle components, for instance a gym, coffee shops, restaurants and entertainment areas," explained Leite.
"Due to a shortage of stock many tenants simply stay put, renewing their leases year after year."
Rental escalations vary between 8% and 11% and returns vary between 6% and 10%, depending on when the property was purchased, the price paid and the rental achieved.
"This is aside from potential capital gain, which is all important. On high end properties returns are, however, generally below 6%," said Leite.
A number of mothballed and new developments have and are coming to the market with buy-to-let investor appetite increasing.
"There is a trend for parents to invest in student accommodation, purchasing properties for their children while they are at varsity and deriving capital gain," explained Leite.
"This said, a number of investors have also sold their properties, leveraging on the strong sales market, depending on the particular investment cycle and investor strategy."
In general, he said Pam Golding Properties saw a steady growth and activity across most regions and areas.
The top end of the market has been very active and tenants like expats, contract appointments (national and international), work transfers, international appointments and captains of industry are willing to fork out between R40 000 and R85 000 per month.
The residential rental market across the Cape Town suburbs of the Atlantic Seaboard and City Bowl is performing well and delivering excellent returns for landlords, according to Ian Slot, Seeff’s managing director for these areas.
"Demand for long-term rental accommodation on contracts of 12 months and longer continues to surge and now outstrips supply, especially in high demand areas such as Camps Bay, Sea Point, the V&A Waterfront and the central city and surrounds and stock shortages have become a real challenge for agents," said Slot.
"While the bulk of the demand still comes from local tenants there is also good demand for corporate rentals, relocations from upcountry, especially Gauteng, as well as from visiting and relocating foreign nationals."
Over the last year, Seeff concluded about 500 rental contracts worth almost R93m in rental returns for landlords, up by about 55% on the previous year’s value of R60m. At an average rental rate of just over R14 100 per month, the returns that landlords enjoy also significantly outstrip the national average of around R6 000 recently reported by PayProp.
The top end suburbs of the Atlantic Seaboard and City Bowl continue to demand ever higher and the highest rates in the country, said Slot.
More than 50 leases were concluded at a monthly rental rate upwards of R20 000 and a further 26 at upwards of R30 000. The highest rates achieved (based on contracts of 12 months and longer), are in Clifton at R65 000 and R80 000 respectively, while two luxury homes in Camps Bay were let out at R45 000 each, a third at R55 000 and a top end villa at R70 000 per month.
Fresnaye rentals topped R52 500 and R54 600 (over 24 months) while Bantry Bay achieved R35 000.
"Luxury apartments at the V&A Waterfront achieved R65 000 and R66 780 (over 24 months). Mouille Point apartments achieved a top rental of R42 400 and Sea Point R28 000 per month. The City Bowl suburb of Oranjezicht topped R40 000 and R55 000 for two luxury homes," said Slot.
"Strong demand for rental apartments in Cape Town's central city (CBD) has seen seven long-term contracts concluded at a monthly rental upwards of R20 000 to R27 000 at the top end."
Comparatively, luxury homes in Sandton’s swanky suburbs such as Sandhurst, Hyde Park and Morningside range from about R40 000 to R50 000 per month at the top end.
Luxury apartments in new complexes such as the Michaelangelo Towers and Da Vinci Suites range upwards of about R25 000 to R45 000.
The average gross rental yields and annual escalation rates across the Atlantic Seaboard and City Bowl also top that of Sandton, said Slot.
"Rental property on the Atlantic Seaboard and across the City Bowl now delivers an average gross rental yield of around 7% to 8%, somewhat better than the 5% to 6% of the last few years. Rental escalation rates range from 8% to 10% and up to 12% at the lower end of the market compared to an average of about 8% over the last few years," he explained.
In contrast, Sandton’s average gross rental yield now sits at about 5% to 6% according to Charles Vining, Seeff’s managing director for the area, while current escalation rates are at about 6% to 7% on average.
Clifton and Camps Bay
In terms of the average rental rates for the luxury homes of the Atlantic Seaboard, Clifton now boasts an average monthly rate of about R50 300 ranging to R80 000 at the top end. Camps Bay comes in at around R30 000 to R50 000 at the top end, followed by Bantry Bay and Fresnaye with an average of R24 000 to R25 000 ranging to just over R50 000 at the top end.
Luxury apartments at the V&A Waterfront now command an average monthly rental rate of around R24 000 to R25 000 for a two-bedroomed unit, while three bedroomed units can go for upwards of R35 000 to around R65 000 on the Front Yacht Basin.
Granger Bay apartments now boast an average of around R20 000 ranging to R42 400 per month for a luxury sea-facing unit, while Sea Point now achieves a monthly rental of about R12 800 on average ranging to about
R28 000 for a luxury sea-facing unit in Beach Road.
Cape Town CBD
"Apartments in the Cape Town CBD now command R8 000 to R10 000 on average per month, but top-end units now fetch above R20 000 to about R27 000 per month," said Slot.
"The trendy apartments of the Foreshore area such as Canal Quays now rent out at about R9 500 on average to around R12 500 per month. De Waterkant boasts an average of around R10 000 per month, but can range to around R20 900 at the top end. The average for Green Point property is around R10 000 per month ranging to about R20 000."
The City Bowl suburb of Oranjezicht now commands a monthly average from around R21 500 to between R40 000 and R55 000 for a top end house. Higgovale and Tamboerskloof homes can fetch about R18 000 to R20 000 on average, ranging to just over R28 000.
The suburbs of Gardens, Devils Peak and Vredehoek now boast an average of about R12 500 to R13 800 ranging to R20 000 to R23 000 for a top end home.
Seeff's Camps Bay agent Christine Ireland said quality apartments at a monthly rental of up to R14 000 and houses to about R40 000 per month are in short supply.
"Aside from local tenants, demand is coming from corporates, Europeans, including French and Spanish nationals who are relocating to the city for renewable energy projects, as well as those relocating from Gauteng."
Camps Bay luxury villa rented out by Seeff for R70 000 per month.
Barbra-Ann Briner of Seeff Atlantic Seaboard/City Bowl said, while rental rates continued to climb, landlords still need to be cautious and not overprice.
"A property needs to be quite remarkable in terms of location, views, size of accommodation and finishes to command top end rental rates," she explained.
Seeff's CBD agent Craig Watchurst said the biggest demand is for unfurnished one and two-bedroomed apartments, largely driven by young professionals who work in the city or want to enjoy the cosmopolitan lifestyle in the city and be near Green Point, Sea Point and of course Camps Bay.
Consequently, rental increases of 10% to 15% are now not uncommon compared to last year’s 5% to 7%. There is a significant shortage of properties available for long-term rentals, he added.
Kasia Watchurst said apartments and townhouses priced to about R15 000 per month across the areas, from Green Point to the Atlantic Seaboard, are seeing strong demand. While about 25% are corporate rentals, most are locals looking to move into the areas.
Semi-furnished, especially units fitted with kitchen "white" goods, are sought after. On the back of the strong demand, rates for new contracts have increased by between 10% to 12% and 7% to 10% for renewals.
In conclusion, Slot said the toughening economic conditions are likely to keep the rental market across the Atlantic Seaboard, CBD and City Bowl buoyant for the foreseeable future.