Rental returns set to rise by 20%
Investors moving back to Cape residential property

Residential rentals in Cape Town are set to rise by 12 to 15% over the next year, says Tony Clarke, MD of Rawson Properties – and investors who have kept an eye on South Africa’s economic trends are, he adds, now moving back into residential property in anticipation of these rises.

“For some time now,” says Clarke, “rental returns on Cape residential property have been around 0,5% of the property’s value, while the homes themselves are still gaining in value at a rate of 8% to 10% per annum.

“Now we are beginning to see upward movement in rentals and this, we predict, will result in an average rental return of 0,7% of the property value by the end of this year,” said Clarke.

(His figures were calculated on that of the average bond, 80% bonded and 20% equity.)

Put in other terms, this means that rentals should rise from making an average of 48% contribution to bond payments to 68% which, says Clarke, most investors would see as a far more satisfactory situation.

Landlords, adds Clarke, are now insisting that leases are signed with annual rental escalation increases of up to 12% - another factor which he believes will make residential property more attractive as an investment.

In at least seven cases out of ten, says Clarke, the investor will go for a new development, particularly one in a security estate rather than a second-hand home. This is because tenants prefer the security and other advantages of communal living that include entertainment amenities, caretaking services and less property maintenance.

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