File image: Cape Town apartment. (IOL).

CAPE TOWN - There is reportedly an oversupply of rental properties in Cape Town, according to residential sales and letting specialist at Remax Cape Town, Grant Rea. 

Since October last year, realtors have seen a shift in the rental property market and faced vacant homes for the first time in years, reports Business Insider SA. Prior to this, there had always been demand for a rental property, said Rea. 

However, the average gross yields for realtors have now decreased from 6% to 4.5%. 

Rea reportedly attributes this to several new developments in the Cape Town City Bowl. 

Meanwhile, household and property sector strategist at FNB Home Finance, John Loos said that Cape Town’s property market has shown signs of strain after it has outperformed the rest of SA for ten years. 

Loos reportedly blamed a slowing migration from other parts of the country into the Western Cape. He said that due to steep property prices, the market’s performance was weak. 

In other property news, the latest residential rental quarterly vacancy survey report by the TPN credit bureau revealed that vacancies increased to 5.9% from 5.4% in the last quarter.

TPN said, at a national level, its survey indicated a rental market where demand outweighed supply, which was predominantly due to the strong market in the Western Cape.

Rentals escalated nationally by 2.61% in the same period.

TPN said less pressure might have been expected on landlords to apply rental escalations, because of the 0.25 percentage point reduction in the repo rate by the SA Reserve Bank in March this year.

However, TPN acknowledged the impact of the VAT hike would filter through to both landlords and tenants.

TPN said landlords would be paying more for maintenance, upkeep and levies, while tenants would be under increased financial pressure, making it more difficult for them to absorb an escalation in rental payments.

Vacancies in the sub-R3 000-a-month rental category increased to 9.6% in the first quarter from 4.7% in the previous quarter.

TPN said this rental price band experienced more noticeable volatility, compared to the higher priced categories, which could be attributed to higher levels of financial constraints within this segment, particularly during an uncertain economic climate.

However, TPN said the R12 000-plus-a-month category had the highest vacancy rate, which had averaged 12.3% for the past two years and was consistently higher than any of the other segments.

Despite the increased vacancy rate in the sub-R3 000-a-month price band, it had been the strongest category for the past three consecutive quarters in terms of the market strength index, despite cooling from 64.4% in the fourth quarter of last year to 61% in the first quarter of this year.

TPN reported a marginal dip in the national market strength to 58.4% in the first quarter from 59.5% in the previous quarter.

But TPN stressed this was not necessarily alarming, because it did not result from weaker demand, but a slightly higher increase in the supply rating than the demand rating.

“The fact that both supply and demand ratings are increasing should lead one to believe this points to a somewhat more active market in general,” it said.

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- BUSINESS REPORT ONLINE