Cape Town’s Southern Suburbs is one of the most popular areas for apartment sales and rentals, according to the Seeff Property Group.
And following the latest interest rate hike, individuals might be wondering whether it has become more affordable to rent rather than to buy a home, according to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa. "The answer to this will depend on the home’s location as well as its size and its features," he says.
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According to Stephan Cross, the rise of apartment living is one of the hottest trends, not only in Cape Town, but also in areas such as Sandton. Urbanisation, rising traffic, limitations on time and the need for more secure living, are all factors which are prompting people to look for more convenient living spaces. Maintenance time and costs are also a factor which make apartments more attractive.
He says apartment complexes are also usually managed which means that owners and residents do not have to worry about aspects such as the normal functioning of security and general maintenance as these are taken care of.
A focus on ensuring the complexes are well maintained and well-run, both in terms of maintenance, but also financially, further add to the attraction and investment value that apartments offer to buy-to-let investors.
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A more compact lifestyle offered by apartment living unlocks more time and adds quality to your lifestyle. Hence, we see that apartments no longer only appeal to certain categories of buyers or renters, but have a broad appeal, from young professionals, to families and older buyers looking to scale down.
Apartments are also the most sought-after property for rentals, especially those located in high-demand nodes with access to suitable amenities. These properties are therefore generally excellent buy-to-let investments given that there is an almost perennial demand for rental accommodation, especially in areas such as the Cape Town Southern Suburbs.
A new development such as Alphen Glen for example offers outstanding investment potential with above average rental returns projected based on actual rentals achieved. These offer rental yields of 6.8% to 9% on a one-bedroomed unit and this could potentially increase further over a 6-year period, he says further.
Using the example of a standard one-bedroomed unit with one bathroom and a parking bay and around 47sqm, which, depending on the units is priced between R1.595 000 and R1.925 000 (with no transfer duty payable) could yield a monthly rental of R11 000 to R12 000.
At a projected rental escalation of 8% per annual over the next 6 years, the investor could see a rental yield of 7.9% in year 1, 8.87% in year 2, 9.61% in year 3, 10.39% in year 4, 11.22% in year 5 and in year 6 the yield could reach 12.12%.
At the same time, the investment value of the property would have increased. New developments generally see stronger price growth because you pay the off-plan price compared to what buyers will pay once the apartments start reselling.
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What is more affordable: Rent vs Buy
Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, explains that at the current interest rate of 10.75%, the repayment on a 20-year home loan of R1.500 000 will amount to just over R15 000 per month. In many areas, a tenant will end up paying a comparable amount in rent for a home of similar value. “While it is often possible to rent a home for somewhat less than it would cost to purchase a home, it is important to remember that renting is purely an expense. Owning a home, on the other hand, provides you with an appreciating asset that can provide greater long-term financial security,” he notes.
Goslett adds that the decision of whether to own or to rent will differ from person to person depending on lifestyle needs and preferences. “Affordability is only one of several factors that people consider when weighing up this decision. That being said, it is still one of the biggest considerations. In some areas and within certain price brackets, you will find similar value for money for both renting and buying. But, in other areas and price brackets, renting might be more affordable than buying a comparable home,” says Goslett.
Commenting from within the Gauteng market, Nadia Aucamp, Broker/Manager of RE/MAX All Stars, says that in Germiston “you will be able to buy a house for R1.5 million in Albemarle or Dinwiddie. These houses will offer three bedrooms with two bathrooms and two living areas. When looking at the rental side, you will find a similar house in Lambton, Albemarle and Dinwiddie for around R15,000 p/m. You will also have the option to buy a modern townhouse inside the Stone Arch Complex – possibly a three-bedroom, two-bathroom unit or a two-bedroom, two-bathroom unit on the ground floor for up to R1.5 million. The rentals for these units will be only slightly cheaper than your monthly bond repayment if you’re 100% bonded,” says Aucamp.
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In the Alberton area, Aucamp says that while you might find a freestanding house for R1.5 million, it will be easier to find a 100m2 to 150m2 two- or three-bedroom townhouse in this price bracket. “On the rental side, you can rent a slightly bigger 120m2 – 200m2 townhouse or home for roughly R15,000 p/m. The houses will be in Mayberry Park, Brackendowns, Verwoerdpark or General Alberts Park area,” says Aucamp.
Commenting from within the Western Cape, Kevin Jacobs, Broker/Owner of RE/MAX Premier, says that it all depends on the area. “For example, R15k in rent can get you a one-bed apartment at The Herschel in Claremont Upper but could afford you a 2-bed or even 3-bed house in Plumstead; semi-detached home in Harfield Village; or bachelor flat in the CBD. In general, you can expect to get at least a 2-bed rental unit for that price, be it in the form of an apartment, a house, or townhouse.”
When it comes to purchasing a home for R1.500 000, buyers could find a two-bedroom townhouse in Kenilworth or a bachelor flat in Claremont. The difference between renting and buying starts to get more noticeable when moving into the higher price brackets. For example, in the Western Cape, average property prices are around R2. 500 000. The monthly repayment on a R2.500,000 home loan at the current interest rate amounts to roughly R25,000 per month. For a home of similar value, it is possible to pay around R18 000 per month in rent (depending on the suburb).
Despite this, Goslett emphasises that the reason somebody chooses to rent rather than to buy or vice versa will be different for everyone. “Affordability will not be the only factor. While renting will offer more flexibility than buying, owning a home will provide greater financial returns and will offer greater stability. Many renters might not even realize that they can afford to purchase a home simply because they have not yet explored the option of buying. Keep in mind that the sooner you can enter the property market, the greater your long-term returns will be,” says Goslett.
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