Luxury living: A six-bedroom house in Clifton is to let for R180,000 a day. Picture: Pam Golding Properties
Luxury living: A six-bedroom house in Clifton is to let for R180,000 a day. Picture: Pam Golding Properties

Buy-to-let investors would seem to have little to cheer about this festive season, as they battle to convince cash-strapped tenants to renew their leases at higher rentals.

Rental growth rates have languished at an average 3%-4% since early 2018, significantly down from the 7%-10% of three to four years ago. There has, however, been a small uptick in rental growth in the third quarter, according to PayProp’s latest quarterly rental index.

The tenant payment processing firm’s figures show that rentals across SA accelerated by an average 4.2% year on year in September, the highest monthly increase in 18 months. It is also the first time since April 2018 that rental growth has edged past the inflation rate of 4.1%.

Though the increase is good news for the industry, it is too early to say if it is merely a seasonal, spring blip, or the beginning of a sustained recovery.

Either way, Johette Smuts, head of data and analytics at PayProp, says landlords should not expect rental growth to reach highs of 7% and over anytime soon, given ongoing financial pressure on consumers and the oversupply of rental stock in many areas.

"Tenants are both willing and able to move rather than accept rental increases," she says.

Though the monthly rental for the average property in SA has increased by less than R200 this year — from R7,544 in January to R7,727 in September — Smuts says it is encouraging that rental growth hasn’t slowed.

Latest data from property economists Rode & Associates shows a similar trend of subdued rental market activity. The number of rental flats standing empty in SA’s major cities has risen steadily over the past three years, with the national vacancy rate reaching 5.9% in the third quarter. That’s up from 5.2% a year earlier and well ahead of the 4.3% of early 2017.

Cape Town has been hardest hit. Over the past year alone, its flat vacancy rate jumped from 2.2% to 8%.

Rode & Associates’ Kobus Lamprecht ascribes rising vacancies to a "huge" increase in new rental supply, coupled with subdued demand. He notes that landlords at the upper end of the rental market, in particular, are battling to find tenants — the R12,000-plus a month segment has a hefty 15.4% vacancy rate.

Holiday and short-term rentals appear to be just as sticky, with pricing in many areas remaining at last year’s levels.

Tenants are both willing and able to move rather than accept rental increases
Johette Smuts

And it seems the much-anticipated recovery in Western Cape tourist volumes following the drought-induced slump in 2017/2018 hasn’t yet translated into a noticeable improvement in holiday bookings.

Ross Levin, MD for Seeff Atlantic Seaboard & City Bowl, says festive season bookings have recovered only about 20% since the water crisis hit Cape Town two years ago.

"Though there is an expectation that we should see a better tourism season compared with the past two years, we are not yet seeing the rate of growth we’d like to see," he says.

The good news, says Levin, is that rental rates have remained fairly flat, which means there is value to be had for holidaymakers considering rental bookings for Christmas and New Year.

A weaker rand also means SA remains a value-for-money tourist destination for foreigners, who make up about 20%-30% of Cape Town’s festive season short-term lettings, and account for 40% in some areas, says Levin.

But it appears even foreigners with hard-currency budgets have cut back on what they are prepared to pay. The extravagant rates of up to R250,000 a day that well-heeled tourists were forking out last year for a prime spot in Clifton or Camps Bay have seemingly made way for more "modest" rentals of R40,000-R80,000 a day.

What it means

Landlords at the upper end of the rental market, in particular, are battling to find tenants

Last year, Dogon Group Properties rented out a mansion in Clifton’s Nettleton Road — arguably the most expensive street in SA — for a record R250,000 a day. The company achieved an equally staggering R110,000 and R130,000 a day for two other Nettleton Road properties.

But Dogon Group CEO and founder Denise Dogon says this year there has been a 10% drop in inquiries for luxury holiday rentals. Most demand, particularly among domestic tourists, is for properties priced at R10,000-R15,000 a day. "But foreigners typically have bigger budgets — up to R80,000 a day," she says.

Meanwhile, Pam Golding Properties has a three-level Clifton property to rent at what is believed to be a record asking price for the Atlantic seaboard for 2019 — R180,000 a day. The six-bedroom house, which is perched against the slopes of Lion’s Head and has expansive ocean views, is described as "the epitome of elegance and luxury".

Any takers?