Rampant demand' for short-term residential rentals in Cape Town

'I do think we are in a bit of a bubble here in what's going on from a tourism perspective, also from foreigners moving here': Alexa Horne, managing director of DG Properties.

By Suren Naidoo 7 May 2024  04:03 

Real estate insiders have highlighted the rising demand in SA for versatile and adaptable properties as buyers embrace multi-generational living and seek short-term rental income to boost their earnings.

For many it may be a side hustle or an additional revenue stream in addition to their day jobs.

To share some insight on these trends, in particular, the growth in short-term residential rentals on The Property Pod this week is Alexa Horne, managing director of Cape Town-based DG Properties.

Highlights of her interview appear below. You can also listen to the full podcast above or download it from iono, Spotify or Apple Podcasts.

Highlights

I want to zone in on short-term rentals, especially in the context of Cape Town and the Western Cape market, which has seen a boom in short-term letting through platforms like Airbnb and Bookings.com. How big is the segment of the market now, because there have also been comments about this being a big contributor to the spike in property prices in the Western Cape in particular?

"It's unbelievable. Just from our property perspective - we focus on sales and long-term rentals - we've been inundated with short-term rental requests.

"Everything's based on relationship, [such that] we've had to kind of pivot and actually offer this service to our clients. We deal in the high-end property, so in that space we literally have families moving out of their homes, renting out their homes on a short-term basis, planning in advance and going for their overseas ski trip.

"We have people who are viewing properties with a very specific view in mind: to have a guest cottage that they can rent out.

"I speak purely from a Cape Town perspective, because I do think we are in a little bit of a bubble here in what's going on from a tourism perspective, also from foreigners moving here. I have, for example, a client who's flying in on Thursday for a second viewing, and the brief was that they actually viewed the property with their short-term rental agent to kind of get an idea, or a feeling of what they can generate from their asset. It's just such a meaningful calculation when working out what they would like to purchase."

Well, it's not just hybrid working. It's the whole 'swallows' coming to Cape Town, as it were, and the remote working phenomenon?

"Absolutely. I think we changed direction after Covid, because a lot of people came to Cape Town, came to South Africa, and were based here. I have a recollection of a client of mine in Constantia whose son was a trader for one of the big companies in the UK, and he was doing video calls from his desk. He'd kind of closed the curtains so no one could see, back at his office, that he was in the sunshine - because nobody would know where you are.

"And certainly, since Covid it's just been rampant, the demand. Last summer I encountered a lot of Germans - not families but groups of families - who came together out here in our summer to avoid the European winter, and they were all working from their base. They would rent out a substantial home, and [for them] what a pleasure to be based in Cape Town, to have a beautiful summer and to be carrying on with their work. So it's a trend that's increasing."

Can I ask how DG Properties is involved in the market within the context of Airbnb and Bookings.com? How do you service the market in terms of this trend? Also, who's getting into this market? It seems that it's no longer just the rich property investors who buy into apartment developments to let them out on a short-term rental basis.

"We have a partner that we work with, which provides that service. Whether it's apartments on the Atlantic Seaboard or the bigger homes, we can hand-hold our clients through this and get them to understand what kind of revenue they can derive. So that's the service we provide to our clients.

"It's really across the board [in terms of market demand]. We had a very successful development that we sold on the Atlantic Seaboard in Sea Point called Station House. It's astonishing. A lot of the units were bought for investment purposes, and the short-term rentals derived from those properties are staggering - across the board.

"I think property's always just such a favourite as an asset class because people understand it. When they purchase the property they can clearly work out the potential to derive from an income perspective, and it's an asset class that people are very comfortable with. When you talk to people about shares or whatever, depending on who they are and what their understanding is, sometimes people don't relate to that ...

"And when you can get a very clear estimation based on other apartments and apartment blocks, it's not a guess, it's not a thumb-suck, it's based on actuals. They get a very clear understanding and they're more likely to purchase that property if they can glean what they can earn from it."

From your expertise, what advice would you give a home buyer or property investor looking to invest in a property that they want to get additional income from through short-term letting of the property? What do you look out for?

"I would always say that from an investment perspective you've got to look at what income you will derive. You won't necessarily buy something that you want to stay in yourself. You've got to look at the opportunity, and there I would really seek advice from people in the know.

"So really quiz your agent who is facilitating the sale on actuals insofar as what rental income is being derived."

"The long-term rentals are easy to establish, but I've recently gone through an exercise with a client of mine to do a comprehensive report on what occupancy will be over the year and what they can realistically [expect]. One has to be conservative about what they can realistically hope to attain in a calendar year from a rental perspective."

Can you share some pros and cons on short-term letting? 

"On your long-term rentals you do a full risk analysis on your client, you get their credit rating. It's less wear and tear. And that's also the analysis you have to do at the outset when you are analysing should I purchase this property from an investment perspective. You've got to measure up what your long-term return is, and what you could derive on a short-term basis; and it's risk/reward.

"But there are ways and means of screening clients, going into their history, looking at their reviews. So all those steps are also quite important in risk mitigation."

Besides short-term rentals and where you can generate income, tell us about this new trend on multi-generational living?

"We encounter this quite often, and we have numerous clients looking for larger properties where they can build a sort of compound for their family. And why not? A lot of families want to be together. They've got that security: 'It takes a village to raise a child'. So, based together it's been done very successfully in upper Constantia and Bishopscourt with families building a main family home for parents, and they build a home for their children. They have their grandchildren close by.

"A lot of people are looking for these types of opportunities. That's on the high end. But across the board it makes sense to kind of pool resources to make sure that you have all the off-the-grid options available to you. I think also, particularly in Cape Town, we have a lack of secure living."

"So, if you create something where your family is, you can secure it, you've got off-site monitoring. You can make sure it's a safe and secure place for you and your family. Security estates are very popular with a lot of people moving down from Joburg - and increasingly from KZN. We just don't have enough security estates for the demand.

"Lots of people are looking for bigger spaces where they can build multiple homes. What has also really added to this trend is the possibility now - and it's been in place for quite a while - of sectionalisation.

"So what one can do is build up to three homes on one erf. That really helps and has obviously added to the increase in this trend."

Listen to the full episode here.