BUY-TO-LET A BETTER BET
Residential rental growth is on the rebound, which bodes well for property owners and prospective landlords
SA’s rental housing market, which was suffering from an oversupply of properties and falling rentals for much of 2020/2021, is staging a comeback.
Industry players are reporting an encouraging uptick in rental demand across most cities and price brackets. That’s been underscored by performance metrics such as vacancy rates, tenant arrears and rental growth, all of which have shown a steady recovery in recent months.
Cape Town’s rental market seems to have bounced back particularly strongly. That follows a slump in rental activity on the back of pandemicrelated travel restrictions, which meant a drying-up of corporate relocations to, and tourist arrivals in, the Mother City.
Many short-term holiday and corporate lets were placed on the longterm rental market, putting further pressure on already soft rentals.
Cape Town rental agents say the most noticeable rebound in rental activity has been at the top end of the market — typically properties that fetch R50,000 or more a month.
Dexter Leite, Pam Golding Properties’ Western Cape rental manager, says well-heeled tenants, including corporates and foreigners, are back.
Three- to four-bedroom properties with all the bells and whistles in swanky Atlantic seaboard suburbs including Camps Bay, Higgovale, Fresnaye, the V&A Waterfront and Mouille Point now demand monthly rentals of R50,000-R80,000.
Leite says similar rates are being achieved in the posh southern suburbs of Bishopscourt and Constantia. In fact, monthly rentals of R100,000 or more are no longer unheard of.
Jacqui Bush, of Seeff Southern SubMarais
urbs, recently set what is believed to be a rental record for the area, signing a three-year lease with an Irish family for a luxury country retreat in Upper Constantia at R130,000 a month. And the tenant paid for all three years in full, upfront.
Bush is also negotiating leases with foreign tenants from the US and UK. “They are looking for premier properties in Upper Constantia. Most are coming to SA for work reasons and demand high-quality rentals,” she says. Jessica Marais, rental manager for Seeff Atlantic Seaboard, recently let three high-value properties in the R70,000R100,000 a month range in Camps Bay, Fresnaye and Tamboerskloof to Swiss and Swedish families and a US corporate.
“Stock is extremely low and quality properties rent quickly, which is indicative of the demand we are seeing in the luxury market,”
says. As a result, high-end prices are up 15%-20% from last year.
Demand for luxury rentals in
Joburg is also on the up, says Rochelle Holland, rentals manager for Seeff Sandton. “There’s been a huge increase in demand, mostly among locals, especially in golf estates in the Fourways area and inner Sandton suburbs like Morningside, in the R25,000-plus a month range.”
Holland says there’s a shortage of suitable corporate stock, and relocation agencies are increasingly looking for properties in security estates in Fourways and Sandton in the R30,000-R65,000 bracket.
Top-of-the-range properties in
Hyde Park and Sandhurst demand R70,000 or more a month.
In Rosebank, Seeff recently let a three-bedroom penthouse with a rooftop garden and pool for R92,700 a month — believed to be a record for Gauteng sectional-title rentals.
The apartment sits atop the new Park Central high-rise development in
Keyes Avenue, near Rosebank Mall and the Gautrain station.
It’s not only the super-wealthy end of the Joburg market that has seen a resurgence. Chris Renecle, MD and founder of developer Renprop, says rental activity in the R5,500-R20,000 a month bracket started to turn early this year.
Renprop, through its estate agency arm, manages about 3,000 rental apartments across
Joburg’s northern suburbs.
Renecle says Covid lockdowns, coupled with the introduction of remote working policies and record low interest rates, pushed vacancies up and rentals down.
While rental activity remained constrained for most of 2020/2021, Renecle says there was a sudden uptick in demand from the end of last year. The trend has accelerated in the year to date partly, he believes, as a result of people returning to the office.
Vacancies in Renprop’s portfolio are now at 4%, down from a peak of 11% in the second half of 2020. Rentals have also finally resumed their upward trajectory following a period of negative growth.
“In 2020/2021 landlords had to drop their rentals to fill their flats. But rental levels are now roughly back at where they were preCovid,” Renecle says.
He believes rentals will continue to climb over the next 12 months as higher interest rates swing the pendulum back in favour of renting over buying.
“There’s limited new sectional-title stock under construction in Joburg, so lack of supply should provide a further underpin for rentals,” he says.
A recovery in rental growth means buy-to-let investors can expect improved returns. Some developers are now offering investors guaranteed rental returns.
Renprop, for instance, is offering buyers a six- to 12-month guaranteed net income return (after operating costs and utilities have been deducted) of 7.5%-8.5% in a number of its new sectional-title developments across Rosebank, Randburg, Rivonia and Morningside. That’s attractive compared with cash-inthe-bank yields of 5%-6%.
Latest data from FNB suggests that buy-to-let investors have already started to return to the market in anticipation of increased rental demand, which should boost returns.
As a percentage of total transactions, the number of residential property sales that went to buy-to-let investors in the second quarter reached a six-year high of 12%. That’s double the multiyear low of 6% recorded by FNB in the second quarter of 2019.
FNB senior economist Siphamandla Mkhwanazi expects the gradual recovery of the SA rental market to gain momentum “as interest rates rise and employment growth gathers some traction”.
He says national vacancy rates have already dropped from a peak of 13.1% in the fourth quarter of 2020 to 9.9% in the first quarter of 2022.
Meanwhile, rental processing firm PayProp’s latest rental index confirms the market is on the rebound. The index rose by 3% in March, its strongest performance since Covid hit SA in March 2020 and well ahead of the sub-1% growth recorded for most of the past two years (see graph).
Johette Smuts, head of data analytics at PayProp, says the average 1.8% yearon-year increase in residential rentals recorded in the first quarter brings the average national rent to R7,958.
Gauteng was the only province still recording negative growth, albeit at just -0.1%. Mpumalanga recorded the highest rental growth rate in the first quarter, reaching 5.3% year on year.
The Western Cape remains the most expensive province in which to rent a property, at a monthly average of R9,399. That’s nearly double the average R5,521 it costs to rent in North West, SA’s cheapest province (see table).
Arrears, an important metric to gauge the extent to which residential tenants can absorb further rental increases, have also shown a healthy recovery from
2020 highs.
Figures from TPN Credit Bureau show that the percentage of residential tenants who paid their rent in full and on time has stabilised at about 81%. That’s up from a low of 73.5% in the second quarter of 2020.
The most reliable tenants in terms of payment are those in the R7,000R12,000 a month bracket, where the percentage of tenants in good standing is at 87%. The riskiest group is at the lower end, where rentals are less than R3,000 a month. There, the payment rate remains a lowly 68%.