The pendulum is swinging in the Cape Town property market

The Cape Town property market has experienced a surge in purchaser demand over the past two years that was sparked by historically low interest rates. With interest rates now almost double what they were just 12 months ago, coupled with high rates of inflation, rental demand has surged as affordability has become restricted. As a result, the rental stock in Cape Town has almost halved since August and rental prices have increased by up to 30%.

It's not just the constrained mortgage affordability that is creating the surge in rental demand; semigration is back in a big way! Timeout International has ranked Cape Town as the number 1 best city to live in Africa and 11th in the world.

Thousands of South Africans living in places like Johannesburg, Durban and other major metropoles have lost confidence in service delivery in the areas in which they reside, and have subsequently found employment opportunities in an increasingly vibrant Cape Town economy. Most individuals and families in this category initially choose to rent for a year or two before purchasing in an effort to get a feel for the area. This is also increasing rental demand.

Another growing trend fuelling tenant demand has been documented by PayProp South Africa's Rental Index for the last few years, which highlights a consistent year-on-year increase in the "renter- to- buyer" ratio, a trend that has become prevalent in Cape Town. With millennials rapidly taking over as the largest segment of the market, the market is naturally reflecting their preferences. Millennials typically opt to rent due to a combination of factors, the most prevalent being limited affordability and to avoid tying themselves into long-term debt and/or to free up more time and capital for flexibility.

Given the uptick in interest rates, cash offers have skyrocketed in Cape Town over the past six months as purchasers look to minimise interest repayments which is propping up the market. With the post Covid-19 economic recovery gaining traction, a certain confidence has returned and this has seen large outflows of cash from the likes of money market accounts into assets such as property. Investors have also come to the party in both the residential and commercial space to take advantage of the increase in yields as a result of the high levels of tenant demand.

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