Can you actually afford to rent in the Western Cape?

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JIMMY MOYAHA: It’s Property Tuesday. We are taking a look at the property prices in Cape Town or in the Western Cape in general – more specifically the rental property market. It seems that market has seen quite a bit of a boom of late, and rental properties there are quite pricey.

I’m joined on the line by the founder and CEO of Revo Property, Emanuel Germanis, to see if we can make sense of what’s happening in the Western Cape.

Good evening, Emanuel. Thanks so much for taking the time. How did we get to this point? How did we get to the point where one bedroom in Cape Town rents out for R10 000 a month?

EMANUEL GERMANIS: Hi, Jimmy. Thanks for having me.

I think what’s happened is that post the pandemic there was a big suppression and depression on rental prices, and I think it’s a matter of just actually catching up.

There’s a big influx of people looking to live in Cape Town, both locally and from abroad, and I think these prices have actually caught up now.

JIMMY MOYAHA: Emanuel, what have been some of the driving factors behind some of the location increases? I can imagine that even though we are seeing increases across the board in the Western Cape, some areas might be increasing at quicker rates than others and some areas might be having more sustained increases. Do we kind of have an idea of what’s causing that?

EMANUEL GERMANIS: I think every region has its certain attractions, like the southern suburbs have a lot of schools, a lot of infrastructure like hospitals, etc, and I think people generally want to live closer to the schools if they’re in the Cape Town area.

The winelands offers a unique and different lifestyle. We’ve seen a lot of people from Joburg move to the winelands because it offers extensive grounds and offers a very different lifestyle from what they are used to.

But still that underpin of being in a security estate is very important, and that’s what the winelands offers.

The winelands offers a lot of upmarket secure estates, so I think that’s a big driver.

On the Atlantic Seaboard front, I think there has been a big commercial and retail boom post the pandemic. The lifestyle on the Atlantic Seaboard has always been attractive with the coast being so close; access to the mountains is also in close proximity.

But what’s happened is that that retail and commercial components boom has enticed people to expand and explore more from a lifestyle perspective. It isn’t just a region now for holiday makers; there’s a big sort of attractive lifestyle for an owner and a tenant who live in the Atlantic Seaboard.

JIMMY MOYAHA: Emanuel, where are people getting all this money? I’m looking at what you’re saying about the northern suburbs, southern suburbs, and the Winelands. The prices aren’t cheap, regardless of which area you’re looking at. Are we seeing the same sort of demand for the properties that are being bought as well, or is it kind of isolated to the rental side at the moment?

EMANUEL GERMANIS: No, I think what’s happened is that there’s been a very big influx, a larger than normal influx of foreign buyers.

So people are looking not to just come on holiday, they that are looking to settle and live here permanently.

So we’ve seen that big increase on the home-purchaser side, which has put pressure on the local market.

Prices have escalated across the board, across the winelands, both locally and in Cape Town, the Atlantic Seaboard, the southern suburbs. So prices are being elevated because there’s not enough stock.

There are foreign-denominated currencies coming in like the pound, euro and dollar, and these buyers have buying power. So it’s pushing up the prices.

That doesn’t even consider the big semigration topic that we’ve been talking about for the last 36 months.

People from Johannesburg and Durban and other provinces are looking to establish here in Cape Town, and that has also put pressure on the prices, both from a rental and sale perspective.

There just isn’t enough property. That’s just the reality of where we sit right now.

JIMMY MOYAHA: You touched on this semigration side of it, Emanuel, and I wanted to get into the short-term versus long-term conversation to ask – are we seeing more of the move towards signing in that long-term deal because I’m not able to have property readily available? When I do get something that I’m looking at or that I have been looking at, I’m happy to enter into a longer-term lease because I want to secure that property and I want to have that security. Is that something that’s coming up from a rental perspective – or even from a buying perspective?

EMANUEL GERMANIS: That’s become quite a new thing now that we are seeing. Traditionally people always liked a sense of flexibility.

People who were tenants were very reluctant to sign anything longer than 12 months, but in the market we are in right now, we are getting 24- to 36-month lease contract-signing requests from tenants.

And I think it is giving a lot of comfort to landlords. But again, they are in the hot seat right now, they are in control.

And they’re saying, well, we don’t know where the market’s going to be 24 to 36 months from now. Is a normal escalation per annum fair, or do we just restrict people or tenants to signing 12-month leases because there might be an upswing greater than what inflation is. So 6%, 7% rental escalations.

We are not really seeing a lot of landlords very keen on signing those contracts. They are saying to tenants: ‘If you want to sign for 24 to 36 months, we need to see an 8% to 10% increase per annum on that lease.’.

JIMMY MOYAHA: I suppose this is where it’s nice to always have those clauses that are renewable clauses, and those conversations with the landlord are easier to be had there.

Emanuel, what about the risk that we’re running here of properties getting so unaffordable that they start to create a bit of a problem? Or is the demand such at the moment that, because there is so little supply, you’re always – for the next couple of months at least, or next couple of years at least – going to be able to meet the demand side of it, so price escalations don’t really price out anyone at the moment?

EMANUEL GERMANIS: I think we’re in a situation where the market is quite resilient and I think we are not in any danger yet of the local market being priced out.

I think relative to the rest of the globe we are still very well priced.

We’ve been awarded various accolades. Cape Town and the Western Cape have been awarded various accolades, like ‘Best city in the world’, ‘Best food destination in the world’.

I think when people arrive here and they understand what Cape Town has to offer, it’s all relative. For the same sort of experience overseas you’re paying 10 to 20 times the value.

And I think locals, the more that they start to travel and realise where the rand takes you, and what you get for it – they are, I wouldn’t say happy to pay for it, but they feel a lot more comfort in paying for it.

JIMMY MOYAHA: Emanuel, do you think that the current boom that we’re seeing is giving rise to a lot more development? Are you seeing property developers starting to say: ‘We can now come in and put down a couple of units; there are a lot of commitments around it, there’s a bit of a demand from that side of it, and that demand is being fuelled by what’s happening on the rental side’?

EMANUEL GERMANIS: I think what has happened is that there has been a definite upswing in new developments going up across the board, and I think it’s twofold.

The buy-to-let market is very big. And, to your point, I think investors are getting in with reassurances, knowing that there is big rental demand.

So the uptake of, let’s call it, investment stock is increasing, which is allowing the developers to move on opportunities with the comfort that there’s going to be uptake from investor buyers.

I think there’s still a very big shortage of family homes and properties that owner-occupiers would live in because, again, not everybody who anticipated moving to Cape Town has been able to, because there haven’t been enough properties to do that.

So people are waiting in the wings, both locally and abroad, for the next property to come up to allow them to make the move.

I think the answer here is that we will see in time where this will lead. But at the moment there isn’t enough supply.

JIMMY MOYAHA: There’s not enough property in Cape Town, and it’s driving prices through the roof. It is certainly something you want to be able to see in any market if you are in the property space. We’ll keep an eye on this and see how it continues to unfold.

For now, we’ll leave the conversation there. Thanks so much, Emanuel, for those insights and for the time. Emanuel Germanis, co-founder and CEO at Revo Property, joined us to take a look at the property boom currently happening in Cape Town.

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