Sea Point: An Investor’s Eye View

With Sea Point’s natural attractions and strong short-stay letting market, but should investors be scared off by talk of ‘carnage’ in the local market, and new regulations around short-term rentals?

A lively suburb

From an investor’s point of view, Sea Point remains as attractive as ever. Seeff Properties describes it as ‘a lively suburb’ and the ‘hub’ of the Atlantic Seaboard: ‘diverse, brimming with character and boasting a blossoming property market.’ Of course they’d say that; they’re trying to sell property. But Wesgro’s 2018/19 Western Cape Property Report backs them up, pointing out that, from a sales perspective, ‘after a brief pause in 2018, both freehold and sectional title prices [in Sea Point] began rising again in 2019’. Nearly half (45%) of recent buyers in Sea Point were young adults, while a further 14% were middle aged, highlighting as Wesgro put it, ‘the relatively young age of recent buyers’.

In the latter half of 2019 the Atlantic Seaboard in general, and Sea Point in particular, saw scary headlines about ‘slow decline’ or outright ‘carnage’ in the property market. But while average prices on the Atlantic Seaboard did indeed decline by 5.1% year-on-year in Q1 2019, most of the hurt was felt at the top end of the market. Investors would be far more interested in Wesgro’s report, which found that over the 10-year period from 2008 to 2018, Sea Point reported 300% year-on-year growth in the freehold sector and 200% year-on-year growth in the sectional title sector. No other part of Cape Town – not neighbouring Green Point, not the City Bowl, not the Southern or Northern Suburbs – saw growth numbers nearly as strong as that.

Investors should know that when it comes to rentals, the area is overstocked. As Seeff noted in its prediction of 2020 trends: ‘The Cape rental market continues its excellent performance although there are some overstocking issues which persist in certain areas including those caused by the high rate of developments in areas such as the CBD.’

Yet, for now, occupancy figures and the talk around the neighbourhood suggest that short-term rentals are offering attractive returns. In January 2020 PR firm Irvine Partners indicated that owners of one-bedroom apartments at Green Point property The Romney had achieved average occupancy of 77.1% over the previous 12 months, and average monthly revenue of R34 026. ‘Two-bedroom apartments have an occupancy rate of 75.9% and monthly revenue of R45 170,’ they noted. ‘That equates to an attractive average rental/income yield of between 9% and 12% a year.’

The Airbnb Uncertainty

Investors should, however, keep an eye on the ‘Airbnb economy’. Sea Point has more than a dozen Airbnb properties, and the market is an obvious option for those who’re interested in short-term rentals. But the new Tourism Amendment Bill, published in 2019, is bringing uncertainty amid news that ‘short-term home rentals’ will be legislated under the Tourism Act. The Bill also empowers the Minister of Tourism to determine the ‘thresholds’ regarding these rentals… but no-one is quite sure exactly what that means.

Airbnb issued a statement saying that ‘In Airbnb’s opinion, the current wording of the Bill can introduce fundamentally unfair approaches which may disadvantage residents who are currently benefiting from platforms like Airbnb and making a difference to their neighbourhoods. An example of this is the definition of “short-term home rentals” which is very broad, with no clear explanation of what constitutes a “temporary basis”, or to which specific short-term home rentals it applies.’

Airbnb generated an estimated R8.7 billion in South Africa in 2017/18, with year-on-year growth of 65%. Yet, the buy-to-let sector of the local property market currently accounts for just 10,6% of total sales. Maybe, amid all the headlines and uncertainty, those are the numbers that investors should really be looking at.