CT rental market set to boom

© Alexei Toiskin – 123RF.com

The group has seen an uptick of about 20% year-on-year in rental business over the past two years and, while overall sales volumes are expected to contract this year, rentals are expected to boom.

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, agents expect a strong market almost across the board, not just for long-term rentals, but also for short-term lets.

Influx to continue

"We 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.

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.

Comparative rates

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.

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," he concludes.