Take advantage of Cape’s rental boom
A step-by-step guide to becoming a successful landlord
DESPITE the general mood brought on by politics and the interest rate cycle, the market in the Western Cape remains buoyant, with increased rentals recorded.
According to the latest report by Rode Property Consultants, flat vacancies have dropped nationally and Cape Town has the lowest vacancy in the country and highest rental returns. Some two-bedroom flat rentals on the Atlantic Seaboard, for instance, fetched as much as R75 000 a month for landlords in the first quarter of this year.
While this may seem like an ideal opportunity to make money by going from property owner to landlord, Seeff rental agents suggest you follow these 11 steps first:
1. Price your rental right
Each area generally has price bands. The more expensive the rent, the harder it could be to find a tenant. By correctly pricing your rental property, you would be able to attract more tenants and probably keep it occupied, with a lower risk of tenants wanting to move out to find cheaper accommodation.
2. Emergency Fund
Put money aside in case of emergencies.
3. Insurance Keep the property adequately insured and if you are renting it out as furnished, insure the contents. Remove any valuable or sentimental items or fittings. Policies should
be checked for clauses regarding vacant properties.
Alfred Wilsenach, division manager of underwriting at Genric Insurance, says landlords should also consider Rental Insurance to protect themselves from the financial repercussions of tenants failing to pay rent, as well as the costs that come with eviction should this be necessary.
4. Tenant verification Do credit and affordability checks. A background reference check will give some insight into the person who will be occupying your property.
5. Security deposit
Anything upwards of one to two months is the norm. It must be invested in an interest-bearing account to the benefit of the tenant. You may not use any of the funds during the lease. Only at the end of the period can you access the funds to cover any rental arrears or damage.
rental agreement that protects your interests and sets out the duties and obligations of the landlord and tenant, as well as breach of lease conditions and procedures, should be drawn up and signed by both parties. This should be done even if you are renting out only part of the property.
Cape Town has the lowest flat vacancy rate in the country
8. Duration The contract must set out the duration of the lease, the rental amount, and when and how it must be paid, as well as conditions of use of the property. If it is a sectional title or estate property, then the tenant must be given a copy of the rules of conduct. Be sure to point out specific arrangements that may apply such as parking, visitors and noise.
6. Be wary Some tenants offer to pay rent in advance for several months so that they can circumvent the recommended verifications. Many scammers use this to gain access to rental properties, and it might be the last time you see any rent, says Steve van Wyk, the licensee for Seeff Centurion.
7. Rental agreement A solid
9. Inspections An incoming property inspection must be done which details any damage or defects and must be signed by both parties. It is advisable to inspect the property during the lease period, but this must be done by prior arrangement with the tenant. You cannot use spare keys to enter the property at all, nor can you simply arrive at any time. At the end of the lease, another inspection must be done and compared with the incoming inspection.
Advice for investing in property to let
DECIDING between long-term and short-term rentals depends on factors such as market demand, investment goals and risk tolerance, says Claude McKirby, the co-principal for Lew Geffen Sotheby’s International Realty (LGSIR). Long-term rentals offer stability and lower operational demands, with tenants typically signing leases for six to 12 months. The option reduces turnover costs and management time but limits the ability to adjust rental rates quickly and access the property for personal use.
Short-term rentals, facilitated by platforms such as Airbnb, in contrast can yield higher returns because of premium nightly rates, especially in tourist hot spots. McKirby says the option provides flexibility to adjust pricing based on demand and allows for personal use of the property. However, it requires more active management, including frequent cleaning and maintenance, and income can fluctuate significantly with seasonal demand. Short-term rentals face regulatory challenges, including licensing requirements and taxes.
Although “fair wear and tear” is acceptable, any additional damage could put the deposit at risk, says PG van der Linde, the rental manager for Seeff Pretoria East. Aside from any potential rental arrears, the landlord can also deduct the cost of repairs. If there are maintenance issues during the lease period, the tenants must raise this with the landlord. They cannot wait until the lease expires. The deposit (net of any repair costs) must be refunded to the tenant within 14 days. Disputes can be lodged with the Rental Housing Tribunal.
10. Tax Speak to a tax consultant because the rental income will be subject to tax. The income must be added to your normal income. Certain expenses related to the property can, however, be deducted. Visit the Sars website for more information.
11. Rights Bear in mind that under the Consumer Protection Act, the tenant can vacate the property before the end of the lease, provided they give proper notice as set out in the act. As the landlord, you will, however, be entitled to charge a reasonable amount to cover the costs of sourcing a new tenant, any loss suffered and any repairs needed. Stay updated with rental legislation and consider professional property management.
Yael Geffen, the CEO of LGSIR, gives rental investors two ideas: Single Buy-to-Let Investments: The most common investment choice, single buy-to-let investments involve purchasing a residential property with the intention of renting it out to tenants. The strategy offers investors the opportunity to generate rental income while benefiting from potential capital appreciation. Investors should calculate the projected rental yield which is the annual income you receive in rent, relative to the purchase price of the property – rental yield: annual rental income ÷ purchase price x 100. Also consider property location, rental demand in the area and maintenance costs when evaluating buy-to-let opportunities. Houses of Multiple Occupation: HMOs represent an investment opportunity. This is the practice of renting out individual rooms within a property to multiple tenants. It is gaining in popularity as the cost of living and rental and house-buying prices rises, says Geffen. The strategy allows investors to maximise rental income by catering to tenants seeking affordable and flexible accommodation.
HMOs can provide a diversified income stream and mitigate vacancy risks, as vacancies in one room can be offset by income from other occupied rooms. However, investing in HMOs requires consideration of regulatory requirements, management responsibilities and tenant turnover. Thorough market research and financial analysis are essential.
Unease, uncertainty, and hope
As South Africans head to the polls in a 3-ballot system, and the SARB prepares its next repo rate announcement, the property sector waits with bated breath
BY VIVAN WARBY vivian.warby@inl.co.za
NEXT week, two major events will, one way or another, have an effect on the South African property market: the general elections on Wednesday and, a day later, the decision on the repo rate by the South African Reserve Bank (SARB).
As South Africa approaches its first national elections in five years – dubbed “the most critical election since the end of apartheid 30 years ago in 1994” – the property market is on tenterhooks.
The outcome will probably set the tone for economic stability and property market dynamics in the coming years.
Would-be property owners often view the months leading up to an election as a time of heightened unpredictability, causing them to adopt a waitand-see approach, preferring to be cash liquid, before making significant decisions, and this has also been the case for many in the local property market.
Impact on the market
However, in spite of some pre-election jitters, it is the prime lending and repo rate announcement the day after South Africans go to the polls that will probably have the most immediate effect on the market.
The Monetary Policy Committee meets on Thursday to determine changes to the prime lending and repo rate. Although the SARB operates independently of political influences, its decisions impact market activity.
And, in spite of the optimism toward the end of last year that South Africans would begin to see rate cuts by the middle of this year, which would give consumers appetite to purchase a home, it is widely expected that the SARB will hold rates at 8.25%.
A reprieve needed
Bradd Bendall, the interim CEO of BetterBond, says: “Homeowners are desperate for a reprieve, considering the prime lending rate has held steady at 11.75% since May last year.”
Higher interest rates reduce the demand for property purchases, which, in turn, could lead to declining property values.
The recent adjustment of the SARB’s timeline for achieving the target inflation midpoint has added to the market’s challenges, with anticipated interest rate cuts delayed until 2025.
“Of course, a change in political leadership may affect consumer sentiment and investor confidence over the next few months, and a new government could introduce policy changes that impact the property market. But, as Lightstone notes, property registration volumes and prices may drop during an election year, but they usually recover soon thereafter,” says Bendall.
“With geopolitical tension and inflationary pressures being felt around the world, these factors may have a more profound impact on the property market than the elections. We remain cautiously optimistic that the property market’s resilience will once again see it through this period.”
Downward shift
There’s no question, says Lew Geffen Sotheby’s International Realty CEO, Yael Geffen, that South Africa’s property market has shifted down a couple of gears before the election.
“This isn’t surprising, given that the market has been trending downward for the past 18 months anyway, on the back of dwindling electricity supplies, interest rates at 15-year highs and soaring consumer price inflation, not to mention a domino chain of corruption scandals that has resulted in low international investor confidence, all but vanishing.
“The soft market showed, in Lightstone data released in December, a decrease of nearly 100 000 residential transfers went through last year compared to 2022, with the value of trading in the sector shrinking by nearly R90 billion year on year.
“This year, ahead of voting, the market jitters are worse because this poll has been billed globally as the most pivotal South African election in decades. That said, it isn’t all bad news.”
Positive indicators
With many investors adopting
a wait-and-see approach, Geffen does however note some positive indicators such as increased cash inflows into South African bonds and a strengthening rand, suggesting potential for postelection recovery.
While the elections introduce a degree of uncertainty, they also present opportunities for improvement in local governance and potential economic reforms.
John Jack, the CEO of Galetti Corporate Real Estate, says in the five years since the last general election, South Africa has undergone massive change, having “battled the Covid-19 pandemic, the ongoing load-shedding crisis, sub-standard municipal service delivery and a weakened economy because of high unemployment levels and rocketing inflation”.
“While the stakes are high, I believe that the 2024 elections will be a tipping point for South Africa, with many citizens no longer willing to accept the failure to deliver on oft-repeated promises of improvement. Regardless, once the elections are concluded, the focus will, once again, shift to stabilising the economy, efforts that should translate to higher activity in the property market.”
Historical data has also shown that things eventually go back to normal after elections.
“It takes maybe two or three months and then everything will start going back to its normal state.”
Let dust settle
Traditionally, sellers often wait for the dust to settle after elections before listing their properties, anticipating a more stable market.
Renier Kriek, the managing director of Sentinel Homes, says this year, almost half the world’s inhabitants will head to the polls to elect their new governments, including eight of the world’s 10 most populous countries.
“In South Africa, we can expect our own election to put the
property market into a temporary holding pattern, dragging on the subtle buyer’s market we have been experiencing,” says Kriek.
While he advises owners to wait until the end of the year to consider selling their property, Kriek cautions buyers not to get caught up in election fears and miss out on real estate bargains.
It’s a buyer’s market for property and it definitely won’t turn into a seller’s market until after the election and a rate cut.
Three-ballot voting system
For the first time, the elections will see independent candidates contest elections, introducing a new three-ballot voting system that could reshape local governance and influence property values.
Rhys Dyer, the CEO of ooba Group, believes “independent candidates are often more attuned to local issues and they can drive improvements in service delivery, which boosts property values”.
However, while the candidates might bring localised benefits, the broader economic environment in the lead-up to the elections is causing unease among property buyers and investors.
“The lead-up to a major election is always a time of instability and a heightened economic risk profile for the country in the eyes of foreign investors. As a result, some investors and buyers may be choosing to delay making any further investments or purchases until the outcome is announced.
“To add to this, the industry is already under pressure following the postponement of the expected start date for the interest rate cutting cycle,” Dyer says.
Of the three ballots, the regional and provincial ballots will have the greatest impact on residential property values, as the ballots determine who will govern a local municipality and be responsible for service delivery.
Property values are influenced
by the overall stability of an area and inconsistent service delivery can make homeowners feel uncertain about the future.
The negative sentiment can spread quickly, making homes in the area less desirable and thereby impacting demand and property prices, says Dyer.
Municipalities
On the flip side, a well-run municipality that has high levels of service delivery can strengthen investor confidence, resulting in better infrastructure, safety levels and higher values of properties within the area, he adds.
Samuel Seeff, the chairperson of the Seeff Property Group, emphasises the importance of a stable election outcome.
“This stability should have a positive effect on the residential property market,” he says, adding that a rate cut is overdue to stimulate the economy and market.
Adrian Goslett, the regional director and CEO of Re/Max of Southern Africa, says owing to the uncertainty that builds around election time, many investors prefer to keep their finances liquid until the future of the economy becomes more stable.
“It is widely perceived that policy decisions tend to be more favourable leading up to an election and can change postelection. Investors, both foreign and local, are therefore likely to wait a few months both leading up to and following an election period to see if any policy changes come into effect that might affect their return on investment.
“Unsure of how citizens will react to election campaigns and election results, foreign investors also tend to adopt a wait-andsee approach when it comes to investing until they can be more certain of political stability.”
It is clear that no matter the outcome of the elections or the SARB announcement, the impact will be felt in the property market.
THIS year’s election is said to be as pivotal as those in 1994 when millions queued to vote for the first time, as seen in this photo. | INDEPENDENT MEDIA ARCHIVES
ADVERTORIAL
Luxury property sales in Cape Town poised to smash records
THE luxury property
market in Cape Town is booming, promising a record-breaking year for sales, says Alexa Horne, the managing director of DG Properties. She says the company has experienced an active and exciting first quarter of the year.
The momentum has been building since late last year.
March was an extraordinary month for high-end property sales in Cape Town, surpassing all its sales forecasts.
Horne concluded more than R150 million in sales In Bishopscourt within just four weeks, and there were also significant sales made in nearby areas of Upper Constantia.
“Other areas attracting great interest are properties on the Atlantic Seaboard and areas such as Higgovale, Sea Point and the V&A Waterfront, as well as smaller luxury apartments and mixed-use developments located near the fringes of the CBD.” Who is driving the demand?
“There is a strong appetite for luxury property in Cape Town from international buyers keen on exploring the Mother City’s investment opportunities,” says Horne, adding that the favourable currency for foreigners, as well as the unmatched value-for-money lifestyle on offer, continues to attract international buyers from the UAE, UK and Europe, as well as African countries.
The Western Cape, particularly Cape Town, is also enjoying the lion’s share of semigration demand and wealthy buyers (those seeking properties exceeding R20m and even R30m) are showing confidence in the market. What buyers want
Horne says that in addition to demand for freehold luxury homes, mixed-use sectional title developments in Cape Town’s
CBD, such as The Fynbos and Sea Point’s Station House, are being snapped up by a crosssection of buy-to-let investors and those seeking convenient urban living.
“Micro-developments are also in high demand. This indicates a strong market for new, innovative properties that cater to a ‘live-play-work’ ethos, with amenities such as rooftop terraces and fitness centres. There’s also an ongoing interest in sustainable and ecofriendly properties, which aligns with a global trend towards environmental consciousness
“Unsurprisingly, key features for buyers in Cape Town include solutions that manage load shedding – an increasingly important factor in the South African home-buying experience,” says Horne.
“Additionally, eco-friendly features such as solar heating, water storage, purification and recycling systems, and the inclusion of a borehole are becoming top priorities.
“The trend toward integrated living environments is strong. Developments offering a seamless blend of residential, commercial and recreational spaces, including restaurant or retail factors, gyms and green spaces, are in demand, appealing to a range of buyers.”
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Rental demand leads to shortages
It’s not just sales that have seen an uptick. “Factors such as the higher interest rates and semigration continue to increase demand for rental properties in Cape Town.”
Horne says there are rental stock shortages in many areas.
“In particular, the City Bowl, Atlantic Seaboard and southern suburbs have become sought-after areas, resulting in fierce competition for rental properties and significant rental stock shortages. We are also witnessing rental escalations across the board. Luxury properties in areas such as Upper Constantia, Bishopscourt and Atlantic Seaboard properties can command well over R100 000 a month.”
What next?
For the remainder of the year, Horne says, it’s expected that property finance conditions will look more positive, with signs hopefully pointing towards cooling inflation and a more stable interest rate climate.
“Prevailing economic and geopolitical instability in Europe and Asia may further incentivise additional investment from abroad into Cape Town’s property market. We also expect that relocation and the search for areas and regions where ‘things work’ are likely to remain a key feature. As such, we expect that the Western Cape will continue to outperform the rest of the major markets.
“It’s thrilling to observe the surge in sales of luxury properties, which has markedly bolstered DG’s position in the high-end segment of the Cape Town market,”
For more information on property sales in Cape Town, visit www.dogongroup.com or contact DG Properties at 021 433 2580.
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