The vacancy rate is also high in many areas.
Unless operating in the Airbnb investment space - which, although highly competitive, has also been affected by the market conditions, but to a lesser extent - buy-to-let investors are being “severely impacted”, says Lisa Connellan, sales manager at Knight Frank.
“In the current market, landlords who have tenants in good standing should consider retaining that tenant rather than pursuing an increase in rental and risking the possibility that their property might stand vacant for a month or two while they are trying to find a new tenant.”
The sales and rental markets are both driven by the same factors - cautious buyers and tenants who are spoiled for choice, have no real sense of urgency and are value driven, says Jawitz Properties chief executive of Herschel Jawitz.
Value, he explains, is the ability to find the to find the same property at a cheaper price or a better property at the same price as you were prepared to spend.
“Where supply outstrips demand, the competition is not between buyers but really between owners in terms of who is more realistic and willing to listen to the market about what prospective tenants are willing to pay.”
He therefore advises landlords to price their rentals to the market and find a good tenant, even if the rent is less than they expected.
Buy-to-let investors are under pressure due to high vacancy rates and flat, or declining, rental growth. Picture: Ulrich Dregler
“The market will change and they will be able to recoup and make up the difference over time. Sitting with your property empty for months waiting for a rent that you can’t achieve doesn’t make sense, even if you can afford to wait,” Jawitz says.
“If you have a good, paying tenant, who is looking after your property, keep them even if the escalation is low. Tenants are price sensitive and will move to save money.”
Rentals have stabilised over the past 24 months which, in some cases, means they have decreased significantly, says Jacqui Savage, national rentals manager for the Rawson Property Group. Therefore, the buy-to-let option means investors need to do their homework to ensure it will be financially viable.
“Certain areas still have a very high demand and, as a property owner, you are still able to cover your bond repayments with the rental charged. In other areas, you may have to top up out of your own pocket to cover the bond payment.”
She explains that the vacancy rate for rental properties is “high” in the current market and properties are taking between six and 12 weeks to rent out.
“It is imperative that landlords list their properties at the market-related rental prices, to ensure that they can find a tenant as quickly as possible.”
Echoing this, Paul Stevens, chief executive of Just Property says that, on average, rental increases are not exceeding inflation rates and this will continue for the first half of the year. The second half should see improvement, though.
The short-term rental market is a different story, especially in Cape Town where the tourism industry has always been one of the cornerstones of the city’s economy, says Alessia Collura Brown, short-term and holiday rental specialist for Lew Geffen Sotheby’s International Realty, Atlantic Seaboard and City Bowl.
If investors do their homework regarding factors like location and expected facilities and services, holiday property investments in the City Bowl and on the Atlantic seaboard can yield excellent returns, despite the prevailing economy and general market conditions.
“In recent years, sectional title properties have grown in popularity to become the preferred choice of holiday accommodation in most destination hot spots and therefore also the most attractive property type for buyers seeking short-term buy-to-let investments.”
A well-furnished apartment in a building which is not only in the correct position but which also offers tenants facilities and is managed by an experienced letting agent with a good online platform can almost guarantee you an “excellent return on your investment”, Brown adds.
Dexter Leite, Pam Golding Properties rental manager for the Cape Metro region agrees: “Significantly improved dam levels, and the subsequent easing of water restrictions, has certainly led to renewed interest from overseas and local visitors wanting to spend time in Cape Town.”