Cape Town, A Landlord Goldmine

Becoming a landlord may be scary, but can also be incredibly financially rewarding. Here’s how you can coin it by becoming a landlord in CT.
Compare Guru
2016-11-01
Making extra money by renting out a room, flatlet, or investment property can be a great way to ensure a steady flow of supplementary income. But, with such a notoriously fickle property market, where is the best place to be a landlord in SA?

Cape Town, The Mecca For Landlords 

The answer, it seems, is Cape Town. The Mother City has the best return on value as well as the most punctual paying rent dwellers. This is according  to TPN, an online rental payment profiling, and tenant vetting website. The company was started by Michelle Dickens, a former rental agent who became tired of 'no good' or evicted tenants. So, Michelle started the company with the single focus to prevent "delinquent tenants from abusing property managers, and landlords, by creating a shared database to register these tenants' conduct".

Supply and Demand

Dickens asked respondents to rate the supply and demand in their areas in order to quantify the overall strength of the rental market. Vacant properties were included in the total number of rentals available. These were classified as a property that was unoccupied and was not held back by maintenance issues, or otherwise. Therefore, immediate occupation could take place. Respondents had to indicate on a percentile scale whether supply was strong (100), average (50), or weak (0). This information was then aggregated to provide a Demand Rating and a Supply Rating, with the difference becoming the Market Strength Index. A market of 50 equaled an equilibrium in the market. Due to the lack of stock in Cape Town, landlords can expect to impose increases of up to 12.13%. This is according to the TPN Market Strength Index.
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The index showed that 89.52% of tenants in the Western Cape paid their landlord on time every month. The Demand Rating is 92, which is hopelessly under-supported by a Supply rating of 37.23. This means people will pay more, and on time, to ensure there are no problems with their landlords. Gauteng, in contrast, has a low rental escalation of only 3.23%. The area also has a near balance between supply and demand, 64.19 and 73.46, respectively. Nationally, the TPN Rental Market Strength Index was 61.47 in the third quarter of this year. Currently, the index is slowly moving in the direction of equilibrium as the Demand Rating (78.15) drops off and the Supply Rating (55.22) edges upwards.

Popular Rent Amounts

In the third quarter, the national vacancy rate was 5.07 percent. Properties in the affordable segment (rent of R3 000 to R7 000 a month) fared best, with a vacancy rate of only 4.31%
2016
Quarter 1 Quarter 2 Quarter 3
National 6.75% 4.70% 5.07%
<R3000 7.74% 4.63% 4.75%
R3000 - R7000 7.16% 3.62% 4.31%
R7000 - R12 000 4.28% 5.27% 5.55%
R12 000 - R25 000 7.07% 14.11% 11.98%

*Source: TPN Vacancy Survey 3Q 2016

TPN also concluded that the vacancy rate for properties in the mid-to-high-income segment (R12 000 to R25 000 per month) was nearly three times higher, at 11.98%. If you are looking to invest in property and potentially become a landlord, TPN suggests Cape Town due to the high demand and low supply. Many a tale has been told about how apartments in the Cape Town CBD can look almost prehistoric due to lack of modernisation. This could be directly attributed to the high demand. Modernisation is not necessary as people still populate these areas. Simply put, people will pay to be where they want to be.