“Even though most people aspire to owning their own homes, the rental market will always be a significant portion for the residential real estate market,” said Seeff.
“This is largely due to the fact that although financial reasons tend to be one of the key drivers of the demand for rental property, people in fact rent for many different reasons.”
He has seen, since the introduction of the National Credit Regulator (NCR) in 2007 and the onset of the global economic recession in 2008, that demand for rental property has increased notably.
It has become more difficult to obtain a home loan with tougher qualifying criteria and higher deposit requirements. The economic downturn had also left many home owners and bond holders in financial difficulty and they then had to turn to the rental market.
“Long-term rental demand is also driven by aspects such as people moving to a new city or area who often tend to rent for a while before deciding on where to buy,” Seeff told Fin24.
“Then of course, there is the usual start of the year demand from young people who have entered the job market and students looking for off-campus accommodation. Demand is also driven by corporate rentals and the rental rates paid tend to be about 20% above consumer rates.”
Short term rentals
In addition to the demand for long term (12-months plus) rentals, there is also demand for short-term rentals, generally across the holiday hot spots. The coast in particular is usually the most popular in this case, but in recent years, the rise of the MICE (meetings, incentives, conferences and events) industry has seen demand for short terms rentals spike in areas around main convention and conference centres.
The CTICC (Cape Town International Convention Centre) is a good example. It now hosts local and international events on an almost year-round basis, attracting large numbers of business visitors who need accommodation to the city
“Many of our branches also report that some choose to rent as it is cheaper than buying in a particular area. For example, the entry level price in Camps Bay is now at around R5.2m for an older small three-bedroomed house or apartment,” he explained.
“A 20-year bond would cost you in the region of R48 000 per month, yet you can still rent a house in Camps Bay for R30 000 per month, although of course luxury finishes can cost up to R80 000 per month in Camps Bay – based on a recent rental achieved by Seeff.”
The biggest demand for rental accommodation tend to be in the more affordable suburbs and sector of the market – that is apartment rentals below R4 000 per month and three-bedroomed houses below R8 000 per month.
Rental rates vary greatly from suburb to suburb, region to region, town to city and even from city to city.
“Take the Cape metro for example. You can rent a two-bedroomed apartment in Bellville in the northern suburbs for around R4 800 per month, but would need to fork out around R7 000 to R10 000 per month in the CBD or inner city,” he said.
“Similarly, you can still find a three bedroomed house for R8 000 to R9 000 per month in Bellville, but would need to pay around R15 000 to R20 000 per month at the bottom end of the scale in the City Bowl and Vredehoek for example.”
Top end rentals
Regarding top end rental rates based on long term rentals of 12-months and more, Cape Town’s Atlantic Seaboard suburbs are the most expensive in the country. Rental rates for exclusive villas here range from R40 000 to R80 000 per month on average in Clifton, up to R55 000 per month in Fresnaye and Bantry Bay, up to R80 000 per month in Camps Bay and up to R70 000 per month at the V&A Waterfront.
Other top end suburbs of the Cape such as the southern suburbs – Bishopscourt and Constantia – now range to around R55 000 per month on average, but can go to R70 000 at the top end.
Comparatively, luxury homes in Sandton’s swanky suburbs such as Sandhurst, Hyde Park and Morningside range to about R40 000 to R50 000 per month at the top end. Luxury apartments in new complexes such as the Michelangelo Towers and Da Vinci Suites range upwards of about R25 000 to R45 000.
Average gross rental yield
Across most of the main rental nodes, the average gross rental yield is at 5% to 7%, but there are high demand areas where this ranges to around 7% to 8%.
Annual escalations ranges on average at around 5% to 8% on renewals, but can be as much as 10% to 15% on average on new leases.
“Challenges for landlords include vetting of prospective tenants, collecting of monthly rent and managing of tenants. These are some of the challenges that landlords face, especially those who are not in the business of property rentals,” said Seeff.
Making use of a credible and experienced rental agent is, therefore, highly recommended.”
Where to invest?
Popular rental nodes are usually those in affordable areas with good transport infrastructure and access to schools and amenities such as shops, medical care and neighbourhood conveniences, he explained.