Lock-up-and-go investment properties have become more and more popular as investors realise the benefits of low maintenance, security and easy placing of tenants. It’s true that one pays a monthly levy to the body corporate and that, as an individual owner, you may not have as much say over matters, but as an investor, it’s often easier – especially if your property is in a different city or province.
It’s obviously worth your while to do your homework on how well the body corporate is operating, but generally speaking, you can see that from your ‘first impression’ view of the building. It’s really useful though to pay a fixed monthly amount that covers all your major maintenance, and owning a unit without a garden makes it even easier. You can deal with minor tasks such as interior painting or a burst geyser, but the main building maintenance is managed by someone else.
...with a vibey city centre catering to professionals and students alike, the traditional rental market has been very active.
Welcome to Cape Town
Sing along if you know the song
Everyone loves Cape Town, and over the last few years, with online booking companies like Airbnb making it so easy to manage short-term rentals, the market has been booming and many people have invested specifically to cater to the tourist market. There’s been an increased demand for short-term holiday rentals and apartments in the busy tourist areas such as the Waterfront, Foreshore, Sea Point and Green Point, and these have become prime locations for investors. With shops, restaurants, attractions and public transport, it caters to the ‘city living’ but has the added advantage of the ocean and Promenade area just a stone’s throw away. You really can feel as if you have the best of everything.
Many people have also moved to Cape Town over the past few years and, with a vibey city centre catering to professionals and students alike, the traditional rental market has been very active.
A cautionary tale
Interestingly enough though, things are changing, and the latest Cape Town Sub-Regional House Price data from FNB shows that price growth turned negative in the City Bowl, Southern Suburbs and Eastern Suburbs (such as Salt River and Woodstock), along with the Atlantic Seaboard, in the first quarter of 2019. Owners have also been feeling the pinch a bit with rentals as they’re not able to simply apply the double-digit increases as they could a year or two ago.
There’s also been an over-saturation of the Airbnb market, forcing many investors to lower their nightly rates, and this is impacting on initial calculations. Also concerning (for property investors) is the potential impact of the newly published Tourism Amendment Bill. This bill stipulates that short-term home rentals will fall under the Tourism Act, which empowers the tourism minister to lay down ‘thresholds’ for Airbnb in South Africa. This could include limits on how many nights guests are allowed to stay over, or how much income an Airbnb host may earn, and even a determination of zones where Airbnbs are allowed.
This won’t just affect Cape Town though; any neighbourhoods that currently cater to the Airbnb market could potentially take a knock. Think of the number of businesspeople using short-term rentals in areas such as Sandton and Rosebank. This could change significantly going forward.
An investment case, Cape Town vs Joburg
How do things compare?
Looking at similar new developments in Cape Town and Joburg, it seems that you’ll definitely get more bang for your buck in Joburg, but this does depend on where exactly you’re looking.
Despite the current price data figures and the concerns around short-term rentals, Cape Town properties are still priced high and are being snapped up quickly. A newly built single-bedroom unit in De Waterkant will set you back over R3 million, while a similar apartment in Rosebank is around the R2.5 million mark. The difference becomes even more apparent as one looks at larger apartments, with a three-bedroom apartment in Sandton costing between R3 million and R5 million compared to a similar-sized apartment in Cape Town’s Foreshore costing anything between R9 million and R15 million.
Property growth overall in the Western Cape is still the highest, at an average of 5.4% per year compared to Gauteng at 2.3%
Property growth overall in the Western Cape is still the highest, at an average of 5.4% per year compared to Gauteng at 2.3% (source: Lightstone Property), but it’s hard to justify investing more than double simply to gain an additional 3.1% growth. The better growth does clearly mean a better investment, but it’s a matter of affordability and whether one is willing to place such a high amount into a single property. The rental market is not that much better in Cape Town (in the specific areas mentioned previously), and one should do some solid research.
One can’t just look at facts and figures if you’re looking to invest in a rental property that you plan to live in yourself later in life. Finding a suitable retirement apartment has many added advantages, and retiring in Cape Town is appealing to many.
Take a look at this example of the different prices for rentals and short-term stays in Cape Town and in Johannesburg.
[Insert graphs here]
· 10% deposit is paid along with a home loan over 20 years, at 10.5% p.a.
· Annual rental increase of 8%
· No taxes, rates, levies or other fees have been taken into account
While sifting through many listings one gets a sense of a realistic monthly or nightly rental, but it’s important to remember that there is quite a variance depending on exact location, the state of the unit and the building. For short-term stays, the interior and finishes play an important role too.
One should err on the side of caution when doing calculations and try to factor in all the costs that are known.
Thinking it through
Cape Town is a truly beautiful destination and is the tourism capital of South Africa, but the initial cost of entry into the property market is high. There are obviously many other areas in Cape Town to look at and it’s a matter of deciding what you’re comfortable with, what your investment goals are and whether you see yourself actually living in your investment property later in life.