The demand for rental accommodation in the central Southern Suburbs of Cape Town is very strong – and is likely to gain further strength in the coming year, says Tony van der Lith, the Rawson Property Group’s franchisee for Newlands.
Van der Lith’s rental portfolio covers not only Newlands (where his team is also selling homes) but also Rondebosch, Mowbray, Rosebank, Kenilworth and Wynberg.
“Our Portfolio Administrative Manager, Lindy Mason, is signing 10 to 12 new leases each month,” said van der Lith. “Our portfolio currently comprises 250 units.”
Van der Lith commented that the big demand is in the R4,500 to R6,000 bracket, where the majority of tenants are students attending UCT or one of the other tertiary education colleges in the area, such as Varsity College .
Some students living on their own, said Mason, might spend up to R7,000 per month on rent, while those living in shared accommodation might sign for a R10,000 a month lease together, splitting it between two, three or four tenants. We generally do not advise our clients to rent to students but rather to the students’ parents, as they are generally more reliable and savvier with the process.
For free standing homes in the central Southern Suburbs area, said Mason, monthly rents will almost invariably be over R9,000 and the majority of homes in these suburbs are likely to command rents of over R10,000.
Some of the more luxurious homes on our stock list, said Mason, are achieving rents that are far greater than the area’s average. This franchise has a three bedroom home in Bishopscourt now renting at R38,000 and another three bedroom home in Newlands at R28,000 per month.
With demand so strong, said Mason, buy-to-let investors are now moving in with increasing rapidity and it is likely that rentals will appreciate faster in the next four years. Currently, she said, they are rising at 6 to 8% per annum and the initial return on investments are usually between 5 and 7%, with the new Rawson Developers’ units like Rondebosch Oaks, Rivers Edge, River Song and The Rondebosch achieving returns slightly above that level.
“Investing in a low cost sectional title unit will usually give a better return on capital than putting one’s money into an expensive free standing home. It has to be said that the maintenance costs of the more expensive homes can be high and it has been said that affluent and big spending tenants are sometimes the most unreliable payers. In general, however, over 80% of Southern Suburbs tenants are in good standing with their landlords, 65% paying right on time and only 3 or 4% defaulting altogether.”
With returns in the rental market currently better than those in the money market, said Mason, there can be a tendency to invest all one’s assets in rentable properties. However, because a small minority of tenants will turn out to be unreliable payers, despite thorough credit checks via the credit bureaux, the buy-to-let investor must make sure that he does not have to rely entirely on rents for his income.
“We also get numerous enquiries,” said Mason, “from parents whose children will be attending these institutions about purchasing a property rather than renting one out for a prolonged period. It makes economic sense to purchase a property instead of renting or paying university resident fees in excess of R 60,000 per annum — especially if they have more than one child who may attend one of these tertiary institutions in the future.”