Discover the viability of buy-to-let investments in South Africa, focusing on Cape Town's thriving rental market driven by semigration trends and rising demand. Picture: Nicola Mawson.
The buy-to-let strategy has faced headwinds in South Africa, with rising interest rates, economic pressures, and escalating property prices making it harder for investors to ensure rental income covers costs, according to Odette Maartens, head of rentals at DG Properties.
Despite these challenges, Maartens says Cape Town and the Western Cape remain strongholds for buy-to-let opportunities, thanks to their unique market dynamics.
According to Maartens, Cape Town’s blend of vibrant urban centres, scenic coastal towns, and a resilient rental market—fueled by semigration from other provinces—has kept demand steady. Semigration, where people relocate from provinces like Gauteng to the Western Cape for better lifestyles and security, continues to drive the region's property market.
"As migration to the Western Cape intensifies, the demand for rental properties continues to grow, making the buy-to-let market in Cape Town an appealing option for savvy investors," says Maartens.
According to Maartens, semigration has created a booming rental market in Cape Town. Many semigrants, especially those from Gauteng, rent while exploring their new environment and evaluating long-term settlement options. This has bolstered demand in high-demand areas like the Southern Suburbs and the Atlantic Seaboard.
StatsSA's Household Survey shows that the percentage of households renting increased from 17.7% in 2020 to 23.9%. Additionally, ooba Home Loans data reveals that buy-to-let applications accounted for 32.9% of Western Cape property demand in June 2023, up from 21.5% in March 2020.
"Semigrants often prefer to rent initially, making rental properties in these areas a lucrative option for investors," says Maartens.
She says Cape Town continues to experience property price growth in sought-after areas like Sea Point and Claremont. These neighbourhoods offer attractive rental yields and long-term capital growth.
According to Maartens, despite high average purchase prices in the Western Cape, buy-to-let investments are flourishing as local and international buyers compete for limited properties. Rising house prices are also pushing more people into the rental market, enhancing the potential for stable rental income.
The Western Cape Vacancy Survey for Q1 2024 recorded a 4.42% vacancy rate—the lowest since 2016—highlighting strong rental demand and reinforcing the region’s appeal for landlords seeking immediate returns and long-term growth.
She says neighbourhoods like Sea Point, Green Point, and Mouille Point remain in high demand due to their ocean views, vibrant lifestyle, and proximity to the business district. These areas attract both local and international tenants, offering particularly attractive yields despite higher entry costs.
Popular among young professionals and creative entrepreneurs, the City Bowl—home to neighbourhoods like Gardens and Vredehoek—offers proximity to the CBD, transport routes, and a vibrant social scene. Scenic views of Table Mountain and the harbour, combined with trendy amenities, make this area a consistent choice for renters, says Maartens.
She says suburbs like Claremont, Rondebosch, and Newlands are ideal for families and students due to their proximity to top schools and universities. These areas are particularly popular among semigrant families seeking quality education and offer investors stable rental income alongside capital growth.
The repo rate remains at 8.25%, with a prime lending rate of 11.5%, creating a stable financing environment for investors. Experts predict potential interest rate reductions by late 2024, which could further boost buy-to-let prospects, according to Maartens.
She says semigrants often consist of professionals and families seeking long-term leases. Properties in secure, family-friendly areas can help ensure steady rental income.
According to Maartens, investors managing multiple properties or based outside the Western Cape may benefit from hiring property managers. Maartens says these professionals can handle tenant screening, maintenance, and rent collection, ensuring smoother operations in Cape Town’s competitive rental market.
Maartens says Cape Town remains one of South Africa’s most expensive regions. Investors must ensure that rental yields justify the high initial investments and ongoing expenses.
She says the semigration trend into the Western Cape continues to fuel demand for rental properties, making Cape Town an attractive market for buy-to-let investors.
“For investors who are strategic about location and tenant needs, Cape Town and the Western Cape offer robust opportunities for rental yields and long-term capital growth,” says Maartens.
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