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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2019-06-07

The Rental Demand

According to Inman, the US's leading source of real estate information, America's most expensive rental is available at US$1,5m or R21m per month! It is a Bel Air, Los Angeles home built by celebrity plastic surgeon Raj Kanodia - on google maps it is still represented as a building site, with the home next door (928 Bel Air Road) having a helicopter conveniently parked on the roof ready for the LA or San Francisco commute.

This is definitely a different world. The home was on the market at US$180m and exceeds 3,100 sqm of built area. The price was reduced to US$150m and in the absence of a sale it has been made available as a rental.

Sound familiar This is exactly our experience in Zimbali across a range of high-end properties that have been made available as long-term rentals in the absence of a sale.

The most expensive rental I have done to date is a R100,000 per month rental on a R25m property. Is this an interesting return for a property owner Not really as it only represents a gross yield before costs of 4,8%.

Costs for a large expensive property can be substantial and the risk of damages in high-end residential rental properties is so much higher. The gross yield achieved on properties valued at R1,5m to R2,5m can be in the 8%-9% range and are typically let reasonably well given the relative affordability of the rental on these properties.

We are among the most experienced rental agents in the province having concluded hundreds of leases over the past decade. We have noted that very few high-end properties are ever made available as rental opportunities.

The reason is that the return on capital becomes increasingly lower as the price increases as the rental achievable does not continue to increase, but rather flattens out.

If you own a Ferrari the last thing you are going to worry about is the cost of fuel, and in the same way owning a mega mansion typically means you do not have to consider rental income on the property.

Most homes in the R30m plus bracket have furniture and fittings worth many millions and the risk of damages outweighs the advantages of a rental stream.

On the other hand the worst thing for a home is to stand empty, as homes require continuous cleaning and maintenance. Property owners unable to sell their ultra-luxury homes in a soft market face this dilemma.

The decision to rent is then made reluctantly, but can work out for the best if a responsible and well-behaved tenant is found. Is this a possibility Actually yes, as the majority of tenants we deal with are well behaved and considerate in their attitude toward a property.

In Zimbali our active rental market is in the R30,000 to R60,000 p.m. bracket and with a steady stream of people migrating into the area the demand currently exceeds supply.