'Tis the season for earnings in property market
Category News
Those who own holiday properties in and around the Mother City are getting ready for an influx of tourists.
Cape Town is regarded as one of the places to be over the December and January holiday season and while tourists will be soaking up all the city has to offer, holiday property owners will be raking in the cash.
Depending on where in the city or province they are, owners of short-let investment properties can earn thousands per night. In some areas, luxury homes can even generate more than R100000 a day. The tourism industry is one of the most important aspects in Cape Town's economy and Chad Shapiro, an area specialist for Lew Geffen Sotheby's International Realty on the Atlantic seaboard and City Bowl, says it also "significantly" boosts the residential market as short-term letting increases a property's income value.
This, therefore, justifies higher purchase prices. "If a property features well in the short-term sector, it will generate a lot more buyer interest as it has a greater potential to generate income." Short-term let properties offer more value for money than hotels, especially for those holidaying for longer periods.
Self-catering accommodation appeals to travellers who are visiting with families or on tighter budgets, he says. Cape Town is always a holiday hotspot for tourists, says Corinne Ras of Knight Frank Letting on the Atlantic seaboard. "The good weather, food and weak currency for foreign tourists makes it a worthy destination."
Most holiday homes in the city have been purchased primarily for holiday lets as owners know the tourism appeal of the area. While a few locals who let their properties over the peak season (December and January) often head abroad or to a holiday home in another province, she says most have a secondary home specifically for holiday renting purposes and are either residents of another province or country.
With the water crisis over, Ross Levin, managing director for Seeff Atlantic Seaboard and City Bowl, says the city is expecting an increase in tourism and holidaymakers flocking to the "beautiful beaches and winelands of the Cape again this summer". "The quality holiday and lifestyle mean you can enjoy restaurants and other entertainment which you might not be able to afford if you were travelling abroad."
The city, its attractions and beaches are "usually packed" during the school holidays, he says, adding that the holiday and short-term rental market is an important element of the city's property market.
During the peak season, Arnold Maritz, southern suburbs co-principal for Lew Geffen Sotheby's International Realty, says there is a very wide choice of short-term lets in Cape Town, from basic accommodation without sea views for two people for just under R1000 per night, all the way to more than R100000 per night for a large villa right on the beach.
"It depends on a number of factors, with the key ones being location and proximity to amenities." A small percentage of holiday property owners live in these homes for 11 months of the year and then let their properties out over the peak holiday season.
"Many will visit family 'up-country' or even opt to holiday in a caravan park for the same period somewhere in the Garden Route, for example. The funds made during this period can either fill a gap in the budget or go towards extras like an overseas trip during July."
Shapiro says: "Short-term rental income can be substantial and a homeowner will often relocate to reap that benefit. We find the most common time for Capetonian landlords to rent out their properties is over Christmas and new year and in March, during annual events such as Cape Town Cycle Tour and the Mining Indaba."
Experts warn not to rush any decision to buy a holiday home
People enjoying the perfect getaway often consider buying their own holiday home they can use during vacations in and rent out at other times. Although holiday home investments can be rewarding, Carl Coetzee, chief executive at bond originator BetterBond, says buyers should avoid making decisions in haste.
Holidaymakers keen to relocate should remember they probably always see their favourite area at its best. "Out of season, the area could be wet and windy, for example, or too hot for comfort. It will most likely also offer fewer employment opportunities and much lower prospects of establishing and sustaining a new business.
"It makes sense to delay your decision until you are back in work mode and until you have visited the area at different times of the year to ensure it really offers the lifestyle you envisage. "Prices are also likely to be more negotiable if you buy in the off-season," Coetzee says.
Prospective buyers should also check the demand for holiday accommodation outside of peak seasons, he says. "In addition, you should be prepared for the fact that it is usually tougher to obtain a bond for a second home than your primary residence, even if it will be bringing in rental income. Most lenders will want you to pay a sizeable deposit on any buy-to-let property and will probably offer you a home loan at a higher rate of interest than on your primary property."
Furthermore, short-term letting is not as simple as merely uploading photos of your home onto an app and waiting for the cash to flow in, says Adrian Goslett, regional director and chief executive Re/Max of Southern Africa.
"There are legal and financial implications involved in these short-term rentals which could land homeowners in serious trouble if they fail to adhere to the requirements."
The first implication relates to tax as short-term letting is classified as rental income and will need to be declared to the SA Revenue Service within that tax year. While this income will be reduced by certain permissible expenses incurred, such as rates and taxes; bond interest and property levies, he says these can only be deducted in proportion to the number of days the property was rented out.
In some cases, this can lead to homeowners paying more in tax than the rental profit they earned. In addition, the new Tourism Amendment Bill 2019 might make it trickier for homeowners to generate large profits from short-term letting options. The proposed bill is intended to enforce minimum standards to promote a fairer competitive landscape in which hotels, guest houses and short-term rentals can operate.
Goslett says this includes a threshold on the number of nights a short-term rental can be rented out, as well as zoning restrictions on where short-term rental agencies can operate.
The Atlantic seaboard, V&A Waterfront, Stellenbosch and Franschhoek remain popular holiday destinations for tourists, says Knight Frank Letting's Corinne Ras. "The Atlantic seaboard and V&A Waterfront are close to main attractions such as Table Mountain, Bo-Kaap, Chapman's Peak and Cape Point, while Stellenbosch and Franschhoek provide access to a world-renowned wine route."
Tourists typically enjoy suburbs that offer holiday amenities, says Arnold Maritz of Lew Geffen Sotheby's International Realty. Traditionally these are along the coastline, from Blouberg to the Waterfront and Atlantic seaboard and including Hout Bay, Noordhoek, Simon's Town, Fish Hoek, Kalk Bay and Muizenberg.
"These areas, and parts of the CBD, cater especially well to tourists and most offer the outdoors, good restaurants, close proximity to wine routes and many other attractions."
Camps Bay, Clifton and Llandudno are close to beaches and entertainment venues and are "top of the list", says Lew Geffen Sotheby's International Realty's Chad Shapiro. "The wine farms often feature as well. For the more relaxed holidaymaker, the southern peninsula and False Bay coastline are popular."
The advantage of a Cape holiday is that one gets "much more" than a beach holiday, says Seeff's Ross Levin. Holidaymakers also enjoy proximity to wine farms in Constantia Valley, Somerset West, Stellenbosch, Franschhoek and the Riebeek and Tulbagh valleys.
"They also enjoy easy access to popular West Coast destinations, such as Langebaan and Paternoster, as well as the False Bay area including Muizenberg and Kalk Bay. And you can easily add a Hermanus day trip."
Prices of holiday accommodation depend on the property and area, Shapiro says, adding that some homes in Camps Bay can fetch up to R100000 per day. While most visitors opt for rentals at daily rates between R1000 and R3000, Levin says the Atlantic seaboard is the main target for upper-income and high-net-worth visitors who pay up upwards of R15000 to R20000 per night for a luxury seaside apartment at the V&A Waterfront.
Rates for Clifton and Bantry Bay are around R10000 to R20000 per day and luxury villas in Camps Bay, Bantry Bay, Fresnaye and Clifton range from around R18000 to R80000 a night, but can go as high as R160000 a night, he says.
Seeff agents record daily rates, depending on location and accommodation, in other popular areas to be:
◆ Strand and Gordon's Bay: R800 to R3 000 for beach apartments.
◆ Blouberg to Melkbosstrand: R800 to R3 000.
◆ Muizenberg: R1 900 to R3 000 for beach apartments.
◆ Stellenbosch/Franschhoek/Tulbagh: R1 500 to R5 500.
◆ Hermanus/Pringle Bay: R1 500 to R6 500.
◆ Hout Bay and Llandudno: R2 000 to R8 000 and up to R40 000 for a luxury villa.
Long-term losses: Impact of Airbnb
Between 2010 and 2012, the Cape Town property market was affected by the rising popularity of Airbnb, says Arnold Maritz of Lew Geffen Sotheby's International Realty.
This saw some investment property owners withdraw their rental stock from the long-term letting market to tap into the promise of a more lucrative short-term letting business. "The consequence was a shortage of long-term rental stock and an increase in rental costs as demand exceeded supply. It took a while for the market to work out which areas work for short-term letting, and landlords who discovered their vacancies were high returned properties to the long-term market."
Presently, there is an over-supply of long-term rental stock across most areas of the peninsula, resulting in lower annual increases during the past two to three years, Maritz says.
When booking accommodation for the holiday season, Leigh Mulholland of Seeff ShortStay for Hout Bay, Llandudno and Southern Suburbs, advises:
Do your homework: There are many scams in operation.
Check the legitimacy of the establishment and the booking agent. Never transfer money unless you are sure.
Costs and budget: Check what is included in the advertised price and whether that price applies to the period of your booking. Do extras fall outside the quoted rate? Check costs of restaurants and facilities in the area to ensure you budget correctly.
Check the location: Properties advertised on sites are often not clear about location and holidaymakers can be disappointed to find they have to take transport to the beaches.
Facilities and amenities: Know what the place offers, especially if it is selfcatering. What extras are available?
The City of Cape Town's council has approved amendments to the Municipal Planning By-law (MPBL) which will, once promulgated, allow for control over short-term letting.
The MPBL regulates development and land use and one amendment that will take effect once promulgated in the Provincial Gazette is a provision that allows for short-term letting from a house or flat for a period not exceeding 30 consecutive days. This is in response to the increase in short-term letting via online platforms.
"Many submissions supported this provision as it will contribute to our local economy and tourism sector and job creation. We recommend to body corporates, homeowners' associations and the like to control or prohibit short-term letting in accordance with their own rules and to address security or behaviour," said Marian Nieuwoudt, the city's mayoral committee member for spatial planning and environment.
Author: Property 360 - Supplied content
