The reasons more younger South Africans are renting instead of buying

According to Business Insider, the average age of a South African home buyer has increased from 38 in 1980, to more than 44 in 2018, with only 12% of buyers younger than 30, compared to almost 20% in 2007.

Key factors

Key factors are economic stagnation and growth in older-age buyers.  However, increasing numbers of younger people who define themselves as ‘digital nomads’ are also choosing to rent for reasons other than access to finance.

If you’re tech-literate and in your mid-twenties to mid-thirties, you now often have the freedom to work remotely.  More companies are allowing digital-sector knowledge-workers to either work entirely remotely, or they pop into the office for essential meetings and work from home for the rest of the week.

Digital nomads are those who work entirely remotely, and according to Forbes, they are growing:

“In many ways, digital nomads are the leading edge of the shift to mobile and distributed work. Workers, in general, are increasingly working remotely and spending more of their time away from the office.”

They often tend to be freelance contractors rather than full-time employees, which Forbes also predicts is a growing trend. In a survey released in the USA by the Freelancers Union and freelance platform Upwork, they found that 50,9% of Americans will be freelancing in ten years if the current trends continue.

In the Forbes article, CEO of Upwork, Stephane Kasriel, notes that “The growth of the freelance workforce is three times faster than the traditional workforce.”

Digital Nomads will typically postpone entry into the property market until later, focusing more on experiences, travel, and the exposure to other cultures and international opportunities such a lifestyle provides.

If you’re a digital nomad and thinking of spending some time in Cape Town this summer, Green Point Coworking provides tons of useful info.

The proliferation of online booking apps like Booking.comTrip-Advisor and Airbnb have also impacted the way tourists and digital nomads book short-term accommodation.

According to Airbnb Super-host, Charmaine Goott, the Cape Town CBD remains the most popular destination:

“Not to say my clients don’t go elsewhere, but when they pick Cape Town, they pick the CBD for 90% of their stay.  They may go to Stellenbosch for a weekend or Franschhoek, but they associate the CBD with Cape Town.”

What about long-term rentals? 

It’s no secret that Cape Town has experienced a rise in available rental stock for the first time in ten years.  How did this happen?  A few reasons: last year’s water crisis; a glut of short-term rental options due to the rapid growth of Airbnb; a slowdown in semigration from other SA cities, and a proliferation of building developments in the area.

This is good news for renters in the Mother City, not so good if you’re a buy-to-rent owner.

According to Remax agent, Jessica Rother, buy-to-rent on Cape Town’s Atlantic Seaboard is not a feasible option unless you’re a cash buyer or able to put down a sizeable deposit:

“Rentals deliver 5% of the value of the property per annum, where you are typically paying a 10% interest rate on your bond.”

Grant Rea from Business Insider agrees, saying the average gross yield for realtors in this area has decreased from around 6% to between 4.5 and 5.5%.

“This problem will persist for the next two years or so as new developments are coming online now, with as many as 35 approved developments and blocks nearing completion,” says Rea.

Even though Cape Town’s property-price inflation has come off, the Western Cape is still the most expensive province in which to rent, and the North West is the cheapest.

Province average rent year-on-year avg. household income

Western Cape R8 777 10,8% R35 021

Northern Cape R8 211 7,9% R30 683

Gauteng R7 692 5.8% R30 327

Kwa-Zulu Natal R7 580 5.3% R33 681

Limpopo         R7 452 -2,1% R28 132

Mpumalanga R6 919 1.6% R29 724

Eastern Cape R5 516 2.5% R28 320

Free State R5 490 2.3% R29 383

North West R4 990 8,6% R35 013
Source: Business Tech, Feb 2018

In the luxury rentals market, although there’s an over-supply of stock right across the country, some suburbs are bucking the trend.

The V&A Waterfront in the Western Cape and Dainfern Valley in Gauteng are the country’s most expensive rental suburbs, where the average home rents for R45,000 per month. Key reasons are safety and security, business rentals by multinational corporates and lifestyle:

Ten most expensive suburbs – average rentals

Suburb                          Average rental

V&A Waterfront (Cape Town, Western Cape) R45 000

Dainfern Valley (Fourways, Gauteng) R45 000

Clifton (Cape Town, Western Cape)         R42 000

Inanda (Bryanston North, Gauteng)         R40 000

Constantia (Southern Suburbs, Western Cape) R35 000

Melrose Arch (Illovo, Gauteng)         R33 000

Fourways Gardens (Fourways, Gauteng) R32 000

Woodhill (Pretoria, Gauteng)         R30 000

Zimbali (Ballito, KZN)         R30 000

Bantry Bay (Cape Town, Western Cape) R30 000

Source: Private Property 

For first-time renters, Veronica Logan from Private Property has some useful pointers on what to look out for.

“Jumping head-first into a new lease without first carrying out an in-depth walkthrough could leave you with a fair amount of unnecessary woe to deal with,” she says.

Also, make sure you can afford it, and do a credit check on yourself before entering the market to make sure you’re in good standing – because Rental Agents and/or Landlords will.  Finally, if you’re planning on renting in Cape Town, don’t be afraid of asking for a better price than the one advertised – many Cape Town owners are sitting on empty stock, and will be open to negotiation.

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