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Cape Town landlords may not be able to increase rent for two years

Cape Town bay

Cape Town’s property rental market is going through a major shake-up as new apartment blocks come on stream to provide longer-term tenants with a plethora of choice.

The rental market began softening as early as the first quarter of last year in many popular suburbs, including the City Bowl and the Atlantic Seaboard. Today, tenants are calling the shots and landlords in older properties are having to accept rental decreases of 20% and more to renew existing leases and to attract new tenants.


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Matthew Taylor of Greef Rentals says the most noticable decline in rents has been in the City Bowl, although even the Southern Suburbs – traditionally a haven for students from the University of Cape Town and other educational institutions – has also been hit by the decline.

“Demand for student accommodation usually picks up in November. But rents have dropped,” says Taylor. “In  December 2017 I had a tenant in a 39m² one-bed apartment in a block called The Claremont at a monthly rental of  R9,100. When she moved out at the end of December the unit stayed empty for three months. The new tenant’s rent is R7,000.

“There are a growing number of vacant properties in these prime suburbs. I currently have about 15 properties ready for occupation from 1 October, 12 of which rolled over from September. Historically, I would run with a maximum of six to eight new properties at any given time, all of which would be rented by month end.”

A rental agent who requested her name not be used says some landlords still believe they can charge whatever rental they want, and that they demand double rental deposits. But that’s no longer the case.

“A property in Sea Point that in the past attracted a rent of R28,000 per month is now on long lease at around R22,000 a month,” says the source. “New agreements for such properties are being signed at rents of between R6,000 and R8,000 per month less. The problem is that rents had sky-rocketed to levels that were unsustainable.”

New developments hit too

cape town sunset

Greef’s Taylor makes reference to what he terms the “rental vacuum”.

“The newly developed apartment blocks have had to drop their rents to attract tenants,” he says. “I’m finding that tenants in the age bracket 20 to 35 who have been renting in older blocks for the past three years have become aware of the lower rents and they are choosing to move to more modern builds where the rents are R1,000 to R2,000 per month more. Landlords are then forced to lower the rent in the older blocks to attract or keep tenants, something I have not experienced in eight years of working in the rental market.

“I have just done my third rental decrease. As an example: I placed a tenant one year ago in a three-bedroom apartment in Oranjezicht for R23,500 per month. At lease renewal the tenants said they were going to move out. I established that price was the factor and I negotiated with the apartment owner for a reduction in the rent, bearing in mind the state of the market. The tenants signed at R19,500 per month. These days, tenants have the online tools to track and compare prices. Rather than have an apartment stand empty for months, landlords are settling for lower rents if the tenant is good.”

Rental glut applies pressure on landlordsLandlord taring up contract.resize

The oversupply of apartments as a result of the increasing number of new developments coming onto the market in the last two years is the primary reasons for the pressure on rents. And the pressure is not likely to ease in the next two years at least, Taylor believes, as more new developments currently under construction are expected to come on stream in the next few months.

“People over-invested in these new builds after being promised high rental yields,” he says. “There just aren’t enough people in Cape Town able and willing to pay the high rental prices that were being asked. The owners of these new builds purchased the units two to three years ago in a booming rental market only to have the new properties launched in a poor market. Tenants now have options. They can shop around, negotiate and make rent ‘offers’ where historically if you don’t bring your application to the viewing you had no chance of securing the rental.”

Airbnb rentals flood long-term rental markettravelling Airbnb

Taylor argues that the initial popularity of holiday/transient guest letting is also a factor placing downward pressure on longer-term rentals.

“When the Airbnb model first arrived in Cape Town a few years ago the holiday rental market was booming because there weren’t many units available,” he says. “Now we see a complete oversupply because everyone hopped on the bandwagon and wanted to rent their places through Airbnb. The problem was that landlords were getting great daily rates which warped their perception of what long-term rentals they could achieve. Airbnb requires properties to be furnished, which generally is not a long-term rental model.


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“The market for Airbnb apartments has become saturated as more units came on the market with more to offer at competitive prices. Landlords began realising that occupancy rates, the time they spent running around and the rentals they were getting didn’t translate to a viable model so they put back on the market furnished properties for long-term rental. This process helped flood the market. And there is decreased demand for furnished apartments as long-term tenants want to use their own furniture.”

Rental hikes to remain static for two yearsRoad ti increase

Taylor says the economic downturn and to a lesser extent the water shortage that impacted holiday letting as fewer tourists visiting Cape Town are also factors impacting rents for longer-term rental properties.

He takes the view that landlords cannot expect rents to rise any time soon and forecasts a minimum of a two-year window.

“I believe we are now back to ‘honest’ rentals,” he says. “Cape Town has had a four-year spike and it’s now time to come back to reality. Landlords will have lower rental yields for new bonded properties; but if one has a good, happy tenant getting a good deal they tend to look after properties better. They don’t feel that they are being ripped off.

“The most important thing for a landlord now is to have that ‘point of difference’. What does your property have that the similar alternative doesn’t have? For example, a granite counter top in the kitchen may not get you more rental income but it will attract more people. Tenants now have options, they have bargaining power and they can actually be picky about where they want to reside.”


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Taylor says there is an increasing tendency in the current market to “break” leases. Tenants are seeing better value for money elsewhere so they’re cancelling their leases in line with the Consumer Protection Act by giving 20 business days’ notice and moving to more affordable yet more attractive properties. They are prepared to pay the penalties – usually two months rent – if replacement tenants are not found.


Words: Blake Wilkins

Trusted Tenant - #TenantPower

david.steynberg@gmail.com

David A Steynberg, managing editor and director of HomeTimes, has more than 10 years of experience as both a journalist and editor, having headed up Business Day’s HomeFront supplement, SAPOA’s range of four printed titles, digimags Asset in Africa and the South African Planning Institute’s official title, Planning Africa, as well as B2B titles, Building Africa and Water, Sewage & Effluent magazines. He began his career at Farmer’s Weekly magazine before moving on to People Magazine where he was awarded two Excellence Awards for Best Real Life feature as well as Writer of the Year runner-up. He is also a past fellow of the International Women’s Media Foundation.

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