Cape Town leads charge as Airbnb boom ejects long-term tenants

Cape Town's growing shortage of rental properties is prompting landlords to demand double-digit rental increases when leases come up for renewal.

In the City Bowl and surrounds, rental flats and townhouses have become as scarce as hen's teeth as investors increasingly let their units out for shorter stays via Airbnb.

That's in stark contrast to Johannesburg and Pretoria, where a growing oversupply of rental apartments are forcing landlords to settle for annual rental increases of no more than 4%-6%.

"That's way down on the 8%-10% average increases buy-to-let investors in Gauteng were still achieving 12 to 18 months ago," said Louw Liebenberg, CEO of residential rental processing firm PayProp.

He notes that South Africa's buy-to-let market has become increasingly location driven, with the rental performance gap between different cities, provinces and price categories widening markedly over the past 12 months.

While PayProp's latest rental index, drawn from the payment data of around 85,000 leases across South Africa, shows that average monthly rentals for the country as a whole were up a respectable 6.6% to R7,062.91 in the fourth quarter year on year, the uptick was driven primarily by the Western Cape and Limpopo.

The two recorded growth of 10.99% and 20.65% respectively. Rental growth in most other provinces slowed to between 3% and 6%. North West saw a drop in average rentals to the tune of -2.41%.

Liebenberg said Limpopo's resurgence came off a low base as rentals had plummeted in the preceding 18 months after mining strikes and a drop-off in construction and ancillary businesses.

He ascribes the Western Cape's outperformance to the semigration trend of upcountry residents to the province. "We have seen a big move of tenants from Johannesburg and Pretoria to Cape Town and the Cape Winelands area, which has led to a surge in demand and rentals, specifically in the R15,000/month-plus bracket."

More than half of PayProp's top 15 priciest suburbs in which to rent are in the Western Cape, including Franschhoek, Constantia, Hout Bay, Camps Bay and Sea Point (read the table).

Liebenberg said the reverse trend was emerging in Gauteng, where tenants were starting to call the shots on the back of a growing oversupply of rental stock across the R7,000/month to R15,000/month brackets.

He attributes this to developers bringing more high-density sectional title projects to the market.

The arrival of online short-stay portal Airbnb to South Africa some 18 months ago has also changed rental dynamics, particularly in Cape Town.

Liebenberg said the phenomenal growth of Airbnb and the promise of higher returns had prompted many owners to remove their rental units from the long-term market.

He expects the Western Cape rental market to continue to outperform over the next 12 months. But, he said, tenants were becoming increasingly cost conscious and won't be able to absorb rental increases indefinitely.

Lorraine-Marie Dellbridge, rental manager for Lew Geffen Sotheby's International Realty in Cape Town, said they wereseeing an increase in tenants - particularly in the higher end of the market - looking to downscale. "These tenants won't necessarily sacrifice on lifestyle, but they will move to a suburb where they can rent more house for their money - say, from Constantia to Claremont."

One sector of the Gauteng rental market that still appears to be experiencing strong demand is serviced, furnished apartments targeting corporate travellers. Several players have entered Johannesburg's executive letting market in recent years.

Anton Gillis, CEO of investment manager AlphaWealth Real Estate, said they offered a niche product through The Residency portfolio.

"After a competitor analysis, we established that there was a gap in the market for an affordable serviced offering for corporate executives looking for a hotel-like experience for an extended stay."

The Residency's first building was launched in 2013 in Sandhurst. The portfolio, managed as an unlisted fund for private investors, has grown to five buildings across Sandton and Rosebank offering 300 studio, one- and two-bedroom apartments.

Four of the buildings are 100% let; the new Rosebank property has a 75% occupancy. Units can be rented on a nightly, weekly, monthly or annual basis. Rates average R1,200/night or R25,000/month and include Wi-Fi, covered parking, cleaning and laundry services.

Gillis said: "We are seeing continued demand for our product because we have invested in the right locations and developed the right price points."

mullerj@fm.co.za