Western Cape Business News

Send  Share  RSS  Twitter  24 May 2011

PROPERTY: Lower-To-Mid Priced Rentals Dynamics


Recent Western Cape Business News

The first quarter of 2011 saw a 25% increase in volume of transactions concluded for rentals in the Cape Town Metropolitan Area, with demand for lower-to-mid priced (R5,000 – R10,000) rentals outstripping supply. This is according to Francois Venter, Jawitz Properties Regional Sales Manager for the Western Cape. 

Venter says that studio, one and two bedroom townhouses and apartments priced between R5,000 and R10,000 are the most popular.  “Buy-to-let investors should therefore focus on this bracket. This means looking at properties worth anywhere from R500,000 to R1,5 million.”

The current environment of low interest rates and with rental increases outstripping property price growth rental yields for buy-to-let investors are increasing. And the strong demand for rentals means that an annual increase of 10% in rental income is standard practice.

He says that while rents of R5,000-R10,000 are still quite high, people are finding ways to afford them.  For example, many young professionals are opting to share. 

In terms of houses, demand is strong for rental properties priced from R10,000 to R15,000. Part of the supply is from people entering the rental market because they can’t afford their bonds and other costs pertaining to their home, but also can’t sell their homes in the current market at the right price either.  “As rents can sometimes be cheaper than bond payments, some sellers are opting to move out of their homes to more affordable, rented properties, and then rent their homes out rather then selling and accepting a low offer in the current market.”

In addition, many people have to rent instead of buying from the outset.  “Obtaining finance to purchase a home is still difficult.  Not only are banks’ credit and lending criteria still stringent, in most cases they also want deposits of at least 10%. With the current high cost of living in terms of electricity, petrol and food prices, not many potential buyers can afford the up-front cost of buying a home which, in addition to a deposit, includes transfer and bond costs and often renovation costs as well.

In conclusion, Venter says that the top end of the rental market is still buoyant, with demand often coming from companies that are relocating executives.  But pricing is key, and property owners need to ensure they don’t turn prospective tenants away by asking unreasonably high rents.

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