Western Cape residential rentals ahead of the rest?

a2The Western Cape emerges as South Africa’s strongest performer in the value of rental contracts, according to Payprop’s Rental Index, for the Second Quarter of 2016 (the period April to June). Data covering the period from the beginning of 2015 to the end of June 2016 shows that the year-on-year growth in rental contracts in the Western Cape hovered around 10% in each of the six quarters. Moreover, while other provinces had shown strong growth at particular times, none matched the consistency of the Western Cape’s growth record.

The average rental in the Western Cape stood at R7 305 at the end of the second quarter of 2016. This was slightly behind that of the Northern Cape – which held the top spot – with an average rental of R7 407, but comfortably ahead of the average of 6 175.85 for South Africa as a whole. And while the Northern Cape had seen sharp escalations throughout most of 2015, this appears to have lost momentum this year. Based on these trends, Payprop predicts that the Western Cape will displace its northern neighbour in the third quarter, registering an average rental in the region of R8 100.

Gauteng and KwaZulu-Natal had seen fair growth during 2015, in the 6%-9% range for each quarter. However, this had dampened noticeably in the first two quarters of 2016. Average rentals for Gauteng and KwaZulu-Natal were R6 853 and R6 952 respectively.

What, then, is driving this growth? The largest rates of growth, typically exceeding 30% year-on-year for each quarter over this period, were in the R2 000 – R7 500 range. However, some very interesting movement has been evident in the upper segments of the market. For rentals of R10 000 and above, the Western Cape’s market is moving with noticeable energy.

The report argues that one factor may be the in-migration of affluent Gautengers to the province. This “Great Trek back”, as the report terms it, has featured prominently in the imagination of property buyers, supposedly driving prices up. The data gives some support to this. In the higher end of the market – rentals of R10 000 and above – growth in the Western Cape has been considerably faster than in Gauteng.

So, over the 18 months covered by the report, Western Cape rentals in the R10 000 – R15 000 segment showed quarterly of growth of between 8.6% and 11.9%. The equivalent in Gauteng was 8.1% and 9.8%. In the R15 000-plus segment, growth in the Western Cape was even more clearly ahead. Growth in the Western Cape ranges from 5.3% to 7.4% per quarter – each quarter showing an improvement on the previous one – while rental growth in Gauteng ranged from 3.5% to 4.9%.

To the extent that Gautengers are relocating to the Western Cape, then, they are impacting on high-value rental properties.

Finally, how are invertors’ bottom lines in the province? Net yields in the 2nd quarter of this year stood at 4.07%. This was in line with net yields over the whole period. Western Cape yields have consistently been the lowest in the country, followed closely by those in Gauteng, arising from the high cost of property in these provinces. But the fact that yields have held stable reflects a mature, competitive property market, a good long-term investment.

Shaun Luyt, Manager of Rentals Operations at Harcourts Maynard Burgoyne remarks that it is important to remember that this data describes the situation as it existed a few months ago. Taking recent observations into account, there appears to have been something of a flattening of the rental market. He draws attention to changes in perceptions of affordability. Clients have become more price sensitive over the past year. Agents, meanwhile have better information on prospective clients’ commitments to draw on, highlighting potential problems.

As Shaun Luyt comments: “To get a good tenant, you need to be flexible. We are finding that matching tenants to units on offer is taking longer than it did a year ago. And tenants are also being cautious, not wanting to overcommit.”

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Errors and omission excepted. (E&OE)