Demand for holiday rentals boosts buying to let on Atlantic seaboard
AN INCREASE in short-term rental demand that far outstrips the 10.5 percent growth in property value along Cape Town’s Atlantic s eaboard means b u y i n g t o l e t h a s become an increasingly viable option for investors, says Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty.
“With Cape Town’s everincreasing profile as a leading tourist destination as well as the growing market for travel within the country, or indeed the city, demand for holiday rentals along the Atlantic seaboard is virtually guaranteed for a good portion of the year,” he says.
“This high demand has resulted in some equally high prices, making these properties as attractive to investors as they are to holidaymakers.”
Investing in the area isn’t without its potential pitfalls, though. Over- eagerness and poor planning can quickly leave investors in a precarious financial position, he says.
“The solution lies in correctly gearing your bond to ensure you’re making a profit throughout the year. If you have to pay in an extra R20 000 or R30 000 a month that you were counting on coming from a year-round steady stream of short-term lets, you could find yo u r s e l f i n t r o u b l e ve r y quickly.
“This is further complicated by the fact that rental property prices can fluctuate quite sub- stantially in line with the seasonal tourist demand.”
Rentals on t he Atlantic seaboard during December and January can increase by up to 500 percent from the lows they sink to between May and September.
The Atlantic seaboard finds itself at the forefront of this trend due to its popularity with travellers from overseas and around the country.
“Camps Bay in particular is almost like a hotel. Tourists just can’t get enough of it and this is driving prices up and up,” says Geffen.
Deciding whether to let a property in the long or short term is difficult. The rewards of s hort- t e r m r e ntals are clearly substantial, with some properties bringing in the same amount for a daily rent during the peak season as they would for a month on a long-term lease. However, this is obviously offset by the large drop in income during the winter, with the distinct possibility of the property standing empty for weeks at a time.
The seasonal price fluctuations affect the entire spectrum of property. A one-bedroomed flat that is permanently used for short-term lets can go from R1 000 a night during winter to R4 000 over t he Christmas break. At the higher end, a four- bedroomed luxury villa c a n r a nge f r o m R4 5 0 0 t o R30 000 depending on the season. There is also a small but growing number of premium properties t hat c ommand rentals of over R100 000 a night.
“Financially secure owners may be better able to weather the variation than those who are partially dependent on the rental income,” says Geffen.
Brendan Miller, chief executive of Lew Geffen Sotheby’s International Realty Atlantic Seaboard, says owners should also pay attention to the more taxing nature of short-term rentals. With guests constantly coming and going, there is an increased chance of breakage and general wear-and-tear.
Also, short- term rentals require significant administration such as marketing, managing guest turnaround and payment collection.
“This is the main reason that most owners who let properties choose to use professional management companies that can deal with the administration while they collect the profits.”
The best way to maximise your income, says Geffen, is to employ different strategies throughout the year.
“Between October a nd April, advertise the property as a holiday rental. Then, once the tourists go home, grow a list of corporate clients who can use it as accommodation for visiting executives.
“This enables you to capitalise on the highly profitable tourist demand as well as maintaining a relatively constant supply of income during the winter,” he says.