SA’s uber wealthy suburbs are testing new rental highs but an oversupply of luxury homes is starting to flood the market
At insurance tycoon Douw Steyn’s gated Fourways enclave Steyn City, for instance, two luxury furnished homes have fetched monthly rentals of R135,000 and R115,000.
At Johannesburg’s The Houghton, a swanky sectional title development overlooking the Houghton golf course, a foreign company is paying R100,000/month to rent a four-bedroom apartment for one of its executives.
On Cape Town’s Atlantic Seaboard, SA’s most renowned playground of the rich and famous, monthly rentals of up to R170,000/month have recently been achieved. In Cape Town’s southern suburbs of Bishopscourt and Constantia, Pam Golding Properties have fetched monthly rentals of between R55,000 and R105,000 for a number of super luxury abodes with all the bells and whistles.
Industry players say demand for upper-end rental properties in Cape Town is being driven primarily by “semigrants” from upcountry areas. This has also brought more upper-end homes in Pretoria and Johannesburg onto the market, as owners who move to the Cape battle to sell their properties and let them out instead.
Groves notes that while rentals of R100,000/month may seem exorbitant, it is only a third of what the monthly bond repayment on the R30m property would be. In addition, tenants are not responsible for additional costs such as rates and taxes.
Though there is still demand for rental houses in Gauteng’s gated estates in the R30,000/month and upwards bracket, particularly among foreign corporates, Groves says there is now a “dramatic” oversupply of luxury, sectional title apartments in the Sandton CBD, as a lot of new stock has been developed in recent years.
“In many cases, landlords are having to accept lesser-priced rentals than they did last year,” he says.
The index tracks rental growth in the top 5% of the housing market in 17 cities across the globe.
Where R80,000/month seemed a high rate just two years ago, top-end homes in Clifton are now commanding up to R150,000 to R170,000/month. Whether this will be sustainable in the current weak economic climate is questionable – Samuel Seeff
Greeff Properties CEO Mike Greeff says despite Cape Town’s outperformance, tenants are without a doubt becoming more value driven and are doing their homework before committing to a lease.
There has already been somewhat of a correction in rental levels, with rentals in some Cape Town areas down as much as 10% from a year ago, when the market was overheated.
Greeff believes pressure on Cape Town rentals may also have been caused by last year’s municipal elections, which brought other major metros outside of Cape Town under DA control. This has likely stemmed the frenetic migration to the Western Cape, albeit temporarily.
Cape Town landlords, who have perhaps become a tad greedy over the past few years, will clearly have to be more reasonable when they set asking prices.
Delbridge says that among the properties that are proving hard to let is a house in Hout Bay with a price tag of R150,000/month, as well as one in Upper Claremont and another in Steenberg Golf Estate, both at R90,000/month.
An oversupply of rental stock has even developed in the previously undersupplied Atlantic seaboard, says Lew Geffen Sotheby’s International Realty’s Lisa Hendricks. “I believe the popularity of Airbnb may have given landlords unrealistic expectations of what returns they can get on long-term rental properties, especially in the winter months,” she says. She believes the market has become overpriced.
Samuel Seeff, chairman of the Seeff Property Group, voices a similar sentiment.
He says Cape Town’s rental premium of up to 20% (and more in some areas) above most other cities is likely to come under pressure, especially at the top end.
“Where R80,000/month seemed a high rate just two years ago, top-end homes in Clifton are now commanding up to R150,000-R170,000/month,” he says. “Whether this will be sustainable in the current weak economic climate is questionable.”
That is 75% more than SA’s cheapest province, North West, where the average home is let for R4,681/month. Until mid-2016, the Northern Cape was the country’s priciest province in terms of rentals on the back of a huge supply shortage.
PayProp data shows that rentals across SA rose by 7.62% in the first quarter, up slightly from 6.25% recorded a year earlier.
Johette Smuts, head of data and analytics at PayProp, says the uptick has been driven by a still strong Western Cape as well as Gauteng, where there has been an increase of almost 10% in the first quarter.
Smuts says Gauteng’s rebound, from levels below 6% in 2016, is unexpected, seeing how lacklustre the province’s rental growth has been.
However, she notes it’s still too early to say whether its rental growth recovery is sustainable.