October 23 2024 22:00
SOUTH AFRICA
As the country braces itself for another interest rate drop, property investors could be in for a bumper summer rental season. Cape Town’s Atlantic Seaboard is experiencing some of the highest capital growth ever seen in South Africa offering homeowners incredible returns on their investment properties.
A recent report revealed rental prices on the Atlantic Seaboard to be around 15% more expensive than other regions in South Africa and growing at a rate of 9.7% per year. With demand driving up prices, it is not only locals who are looking for places to rent. Tourists who previously only visited for a few short weeks of the year during the peak season are now looking to spend two to four months every year in Cape Town. Factors like remote working, the experience economy and the depreciating Rand are contributing to this trend.
Nox Property, a premium residential property management and sales company based in Camps Bay, reports that as at September 1 2024 there are 11,392 active listings in Cape Town’s CBD and Atlantic Seaboard market. The market has seen supply growth of 17% over the past 12 months with an average RevPAR (Revenue Per Available Room) of R1,910.00. This gives a market size of around R8.5bn.
Nox Property co-founder Richard Marshall said tourism in Cape Town made a “remarkable recovery” and is almost back to pre-Covid levels.
According to Statistics SA, air arrivals in Cape Town recorded a 13% year-on-year increase over the period January to April 2024, reaching 405,021, of which 91% were from overseas markets. Considering all the awards and accolades Cape Town is receiving along with its weather, stunning landscapes and high-quality restaurants and attractions, it’s no wonder foreigners and semigrators from Gauteng and KZN see Cape Town as an attractive real estate investment destination. This coupled with a more favourable interest rate will certainly attract more buyers.”
Of the R2.5bn AUM (assets under management) in their portfolio, spanning the entire Atlantic Seaboard, Nox reveals that 95% or one in every 20 buyers purchase with the intent to live in their property and that the split between foreign and locally owned property is 55% foreign and 45% local, with the exception of Camps Bay. Here 62.5% of properties are locally owned.
Nox holds a 10% market share of property sales in Camps Bay and Clifton. Between January to June 2024, they sold 43 properties. The average sale price of a freestanding residential property was listed at R17m, with the highest sale being R54m and the lowest, R9m. Freestanding sectional title properties such as townhouses and apartments averaged at around R9m with the highest sale being R26m and the lowest R2.4m. The length of time properties remain on the market range between 107 days for sectional title properties and 126 days for freestanding properties.
“Properties at R20m and above are mostly owned by foreigners looking for a lifestyle asset rather than a return. With the depreciating rand the capital growth is typically in line with inflation. These homeowners often spend several months of the year at their property and for the remaining months list it as short-term letting. Four-bedroom homes start at around R11 000 per night with five-bedroom homes at R22 000 per night.”
“The income derived from short-term letting is used to support the holding costs of the asset (utilities, municipal taxes, holiday spending money, etc.). Properties under R20m generally see a nett rental yield (post all costs) of between 6% and 8%, which is very dependent on the property itself as well as the capital financing structure,” said Marshall.
Not only does short-term letting provide homeowners with the opportunity to capitalise on their investment, it also offers anyone involved in the management of the property the chance to earn an income. For short-term lets this could be cleaning staff, chefs, babysitters and masseuses and to maintain the property it requires the services of plumbers, electricians, handymen, gardeners, even interior designers and builders, should renovation work be necessary.
“Nox’s property management division has 172 employees of which 120 are housekeeping staff. We provide housekeeping services six days a week in every property we manage and through just our housekeeping staff we contribute in the region of R10 million annually to their payroll and, in turn, the broader economy. We receive in the region of 100 CV’s per month from housekeepers looking for work. I am unsure of just how big the labour pool is but with 200 properties under management at Nox that means the ratio of housekeepers to a property is one to two on average,” Marshall siad.
Considering SARB could reduce rates by 25 basis points in September and 50 basis points in November, taking the repo rate to 7.5% by year-end, Nox predicts interest in properties especially along the Atlantic Seaboard will continue to rise.
alistair@propertyflash.co.za
