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Atlantic Seaboard sees boom in micro-apartments but investing might not have rosy returns

Taryn Murphy, franchisee of Rawson Properties Green Point, said the interest rates had never been lower and the stock availability has never been higher. Photographer: Armand Hough/African News Agency(ANA)

Taryn Murphy, franchisee of Rawson Properties Green Point, said the interest rates had never been lower and the stock availability has never been higher. Photographer: Armand Hough/African News Agency(ANA)

Published Jul 6, 2021

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Cape Town - With blocks of micro-apartments springing up all over the Atlantic Seaboard, the Sea Point, Fresnaye, Bantry Bay (SFB) Ratepayers and Residents Association has warned new investors of financial pain ahead for buyers of these apartments.

SFB chairperson Michael Ender said only a small percentage of micro-apartment purchasers who bought off-plan intend to live full-time in these apartments. He said the majority of sales will be from inexperienced newcomer investors who were anticipating good returns from short-term letting.

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“Hundreds of these micro-apartments will come to market by the end of this year and into 2022. We are likely to see a significant apartment vacancy rate to around the 24%. There was a vacancy spike in Q4 last year recorded according to the Tenant Profile Network (TPN) credit bureau’s vacancy rate survey. I cannot see the current TPN’s Q2 vacancy rate in Q2 of this year holding for very long,” he said.

Ender said in their enthusiasm to take advantage of current low-interest rates they may not have verified the impact of all costs associated with property ownership.

“Unwise investors could be facing a bloodbath in the Atlantic Seaboard rental market,” said Ender.

Property Sector Strategist John Loos said TPN surveys pointed to significant residential vacancy rates already with 13.3% in the Atlantic Seaboard and 28.8% in Cape Town, which includes the City Bowl.

“The high vacancy rate is probably much to do with tough financial conditions after the deep recession of 2020, causing employment loss for a significant group of people and part or full income loss for many more. In such times, one can see a slowdown in new household formation along with existing household shutdowns.

“In tough times this process can slow or even stall young labour market entrants staying in their parent’s home for longer. That dampens rental property demand. This, too, has probably happened significantly of late, and can dampen rental home demand,” said Loos.

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Taryn Murphy, franchisee of Rawson Properties Green Point, said the interest rates had never been lower and the stock availability has never been higher. She further encouraged investors to buy properties.

“Those people who had options and opportunities to vacate leases and move out, switch their Airbnb lets to long-term rentals and/or sell off their places at hugely reduced rates, have done so.

“I predict that if anything (after the third wave and roll-out of vaccines to the greater South African population), we will in fact see a rise in occupancy levels again as people return to work, borders open and weather warms up,” she said.

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Loss said moderate recovery in rental property demand in the near term and into next year can be expected as rates were expected to start to rise.

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Cape Argus

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