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Semigration to Cape Town is slowing

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Even the successful Western Cape found 2017 to be tough year

Semigration to the Western Cape has notably declined over the past two years, and it is not just the province’s housing sales market that is feeling it, but the rental market too.

New migrant research has shown the province remains the most popular destination for semigrants, but the net inflow rate (the number of semigrants moving here less the number leaving) has dropped over the past two years.

Although the province still achieved the highest rental growth rates in 2017, it was a “tough year” with even the strongest markets “finally buckling” under the relentless pressure of political and economic instability.

The sought-after southern suburbs were no exception, says Lorraine Dellbridge, rental specialist for Lew Geffen Sotheby’s International Realty in the southern suburbs, Noordhoek and False Bay.

“The political situation and water crisis precipitated exacerbating factors, including a notable decline in semigration. “For the first time in years, there was an abundance of stock and many properties proved very difficult to let, especially at the upper end.”

There was also a notable drop in demand for houses with gardens and lawns that need to be watered and “even estate homes did not move as fast as we would have liked”. 

“Towards the end of the year it was evident landlords were feeling the pinch of their investments standing empty and as a result many had to adjust their prices.” This trend has continued into 2018, Dellbridge says, with reductions of up to R10 000 seen in a bid to secure tenants.

There are, however, pockets which have been more resilient – suburbs where demand is high, stock is low and investment buyer interest is still keen. One of these areas is what Dellbridge calls “student central”, referring to suburbs close to UCT. 

“Entry and mid-market properties are still in demand, especially apartments and older houses. There also major movements in the lower end of the market in Muizenberg, where one can rent a reasonably sized two-bedroom apartment in a newish development for R6 500 to R8 500 a month.”

The PayProp Rental Index Annual Review of 2017 clearly shows the rentals market’s steady decline throughout the year after kicking off with a year-on-year growth peak of 8.3%.

This dropped to 6.34% in July, and again to less than 5% in November with only a slight increase to 5.75% in December. Johette Smuts, head of data and analytics at PayProp, believes it’s unlikely the rental market will see relief in 2018.

“The volatility will in all probability continue, with the economic and political uncertainty expected to increase leading up to national elections in 2019.” Knowing what drives supply and demand of rental stock is therefore important for landlords and investor buyers to understand, says Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty.

“Ultimately, a well-priced home in a sought-after area, especially those close to amenities like good schools, will always find a tenant.

“It is also critical to have realistic rental expectations and to remember that, especially in the current economy, it is far more expensive to have a property stand vacant for months than to reduce the rental.”

The decrease in semigration was seen in the 2017 FNB Inter-provincial Repeat Buyer Migration study. It shows that although the Western Cape is still the country’s most popular destination for semigrants, its high property prices are making it less popular than it was, and could pave the way for Gauteng to become the top performer this year.

The severe drought may also be starting to play a role, says FNB’s household and property sector strategist John Loos.

“We had anticipated this slow down, on the back of residential property affordability in the region having deteriorated markedly after a strong housing market run in recent years. In addition, the region’s severe drought conditions may also be starting to dampen sentiment of aspirant semigrants towards the region.”

According to the latest 2017 FNB Inter-provincial Repeat Buyer Migration study, the Western Cape last year saw a very significant weakening in the net inflow rate. Loos says this rate was estimated at 8.4% of total repeat home buyers in the province, down from the 13.7% estimate for 2016.

In comparison, Gauteng’s net inflow rate “improved markedly” last year.

“We believe 2018 will see more improvement for Gauteng, and weakening in the Western Cape.”

Loos says these latest repeat buyer migration figures contribute in part to his belief that the Western Cape housing market could under perform in 2018, while Gauteng could be heading into a significantly stronger property period. Chris Hajec, Seeff ’s managing director in Randburg, says: “Gauteng will be the province to watch for property.”

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