For the first time in years, Cape Town rental properties are standing empty and getting cheaper
- Remax Cape Town says Cape Town flats are remaining vacant, while rental rates are decreasing for the first time in seven years.
- Remax's Grant Rea believes the completion of several new developments has led to an oversupplied rental market in the city.
- Cape Town property prices may also be set for a deterioration.
For the first time in seven years, realtors have started to notice a shift to an oversupplied rental market in Cape Town, says Grant Rea, residential sales and letting specialist at Remax Cape Town.
“As a whole, we noticed a significant shift occur from around October 2017 that saw landlords facing vacancies for the first time in years,” Rea says.
“Previously, the demand was always significant enough to ensure each property found a great tenant.”
He says average gross yields for realtors have decreased from around 6% to between 4.5 and 5.5%.
Rea believes the completion of several new developments within the Cape Town City Bowl led to an oversupplied 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 developments and blocks nearing completion.”
Cape Town property market feeling the strain
John Loos, household and property sector strategist at FNB Home Finance, says Cape Town’s property market has shown signs of deterioration after outperforming the rest of South Africa for ten years.
“[Cape Town property prices] have slowed down especially at the very high-income level, with the slowest price growth on the Atlantic Seaboard Seaboard, while the City Bowl is slowing steadily too,” Loos told Business Insider South Africa.
“Comparatively ‘affordable’ suburbs on the Cape Flats have seen major property price growth, while more affordable suburban areas to the North also hold up better, indicating a search for relatively affordable properties.”
FNB’s latest property barometer, released in May, showed that Atlantic Seaboard property prices saw annual growth of 2.5% in the first quarter of 2018, compared to 27.5% in 2016.
Prices in the City Bowl rose by 10% - down from a high of 23.6% in 2016.
Loos believes that the next set of Cape Town’s property price data will reflect that the city’s property price growth has deteriorated or even depreciated.
He blames a slowing in-migration from other parts of the country into the Western Cape - due in part to exorbitant property prices - for the market’s lacklustre performance. The drought, he believes, had a lesser impact on property prices aside from negatively impacting the Western Cape economy.
“A correction was expected to happen. The Atlantic Seaboard and City Bowl showed a combined growth of over 111% the past five years, which is simply exceptional,” he says.
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