The Cape rental bubble has burst.
“Before property investors throw in the towel, this is by no means a reason to panic. Cape Town is a resilient market and this shift is only a realignment that would inevitably follow the unprecedented growth the area has experienced in the last couple of years,” explains Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.
Grant Rea, residential sales and letting specialist at the Remax Living office that operates in the Cape, says that it is the first time in seven years that he has noticed a shift to an oversupplied and under demand rental market. “As a whole, we noticed a significant shift occur from around October 2017 that saw landlords facing vacancies for the first time in years. Previously, the demand was always significant enough to ensure each property found a great tenant,” he explains.
A new normal for landlords
It is a harsh reality for landlords who have been used to an average gross yield per annum of around 6% and now have to be staring down the barrel of 4.5% to 5.5% yields. But, far from being a hopeless situation, Rea suggests that landlords simply need to reassess the anticipated returns.
What’s more, landlords might also have to revisit their marketing strategy. Rea mentioned that a search on one of SA’s largest property portals indicated a total of 4,000+ rentals available across the City Bowl and some of the more affordable Atlantic Seaboard suburbs. This excludes a significant number of landlords that are offering their spaces privately across social media platforms and on Facebook community pages.
Agents and landlords will need to do just a little more to expose their properties to a wider audience. This includes video marketing and exposure on social media platforms, as well as creative wording for ads that highlight the best features and consequent benefits for a potential tenant.
Top tip: You may want to entice tenants by including extras like Wi-Fi, utilities and services like cleaning.
What’s driving the market shift?
Rea suggests the following reasons for the shift in an oversupplied rental market:
Developers have taken advantage of the incredible growth and every conceivable space that was available to develop has been snapped up. As these buildings reach completion, the majority of the units go into the rental market. This problem will persist for the next two years or so as new developments are coming online now, with as many as 35 approved development and blocks nearing completion.
Fall of Airbnb hype
Airbnb reached its tipping point during 2017 when the number of units available to let in the City Bowl and Atlantic Seaboard reached beyond 10,000. As more units flooded onto the short-term letting market, owners had to price their units more competitively to compete. Eventually, many landlords became disgruntled and have returned to letting long term again, flooding the rental market as a result.
The media reports of the impending drought disaster in Cape Town resulted in some of those planning a move to the Mother City quickly changing their minds. Earning potential in Cape Town was also significantly lower by as much as 22% in certain sectors, as reported by CareerJunction’s salary review in the last quarter of 2017.
With most rental agencies only qualifying tenants who earn at least three times the rental amount and asking at least two months rental as a deposit, this has placed huge pressure on tenants. Combine this with the fact that the growth in income has been disappointing in relation to living costs, and you understand why many tenants have simply decided to move away from more expensive areas and rent elsewhere.
Landlords and agents should see this time in the market as an opportunity to review and adjust rent to ensure it is competitive and will attract the best tenants. At the same time, if you are facing vacancies, see it as an opportunity to critically assess the property and make necessary repairs or upgrades.