Why I Rent in Cape Town: Cape Town vs Joburg Property

Cape Town and Johannesburg are different investment games. In broad terms, one tends to trade higher prices for stronger demand and growth potential, and the other tends to offer higher rental yields for more hands-on work. Choose by what you want, cash flow now or growth later, and by whether you can manage the property.

Cape Town or Johannesburg? Two very different games. And most people pick based on where they happen to live.

That's a reason. It isn't a strategy.

Should you invest in property in Cape Town or Johannesburg?

Neither is better. They answer different questions.

I'm going to keep this general on purpose. I won't quote yields or growth rates, because they change, they differ by suburb, and a number that's right today is wrong next year. What holds up is the pattern.

What question is each market answering?

In broad terms, the Cape Town market tends to trade higher prices for stronger demand. Buyers pay more for each rand of rent. The case for buying there usually leans on demand holding up and values growing over time. The trade-off is a lower rental yield on the price you pay, which makes it harder for the rent to carry the bond from day one.

In broad terms, parts of Johannesburg and wider Gauteng tend to offer more rent for each rand of price. The case there usually leans on income. The trade-off is that higher-yield property often needs more hands-on management, and growth in value can be slower or patchier.

So the real question is which of these you want:

• Cash flow now, with more work
• Growth later, with less income along the way

Decide the container before the deal. The Directors Fortress shows you how to set up the company and buy in it. R99 once off. Start here → zahomes.co.za/start-here

How do you choose?

Ask yourself four things.

1. Do I need the property to carry itself from month one? If a top-up every month would strain you, income matters more than growth.

2. Can I manage it, or do I need a team? A property you can drive past is easier than one you can't. If you're buying in a city you don't live in, you need a manager you can rely on, and that's a cost.

3. How long am I holding? Growth needs time. If you might sell in three years, a growth story may not have played out.

4. What can I actually finance? A higher-priced market needs a bigger bond for one property. The same borrowing power may buy two units somewhere cheaper.

Why the suburb matters more than the city

"Cape Town" and "Johannesburg" aren't single markets. Each has suburbs where rentals fly and suburbs where they sit. Each has pockets of high yield and pockets of none.

Two properties ten kilometres apart can behave more differently than the two cities do on average.

So once you've chosen the game, do the local work.

• What do similar units actually rent for, today?
• How long do they stand empty between tenants?
• Who rents there, and why? Students, young professionals, families?
• What's the municipality like on services and billing?
• What's being built nearby that will compete with you?

What about other cities?

The same logic applies everywhere. Durban, Pretoria, Gqeberha, Bloemfontein, the smaller towns. Each sits somewhere on the line between income and growth.

My own verified deals have been in more than one province. A Pretoria property bought at R1.1 million and sold twelve months later for R1.88 million. A development that was later valued at R31 million. Different places, different strategies. The city wasn't the deciding factor in either. The price and the structure were.

The catches

• General patterns have exceptions. There are high-yield pockets in expensive cities and growth pockets in cheaper ones.
• Markets change. What's true of a city today may not be in five years.
• Remote ownership costs more. Management fees, and mistakes you don't see in time.
• Municipal performance varies and affects both costs and tenant demand.
• This isn't a recommendation to buy in either city. It's a way to think about the choice.

Where the company fits

Whichever city you choose, the deed can say the same name. The company doesn't care which province it owns property in.

That's the part that travels. Pick the wrong suburb and you've got one underperforming property. Pick the wrong name and every property after it inherits the problem. Analysing areas properly is a bonus lesson in The Vault. Start with the container first.

FAQ

Is Cape Town or Johannesburg better for property investment?
Neither is better outright. Cape Town tends to suit a growth focus and parts of Johannesburg a cash-flow focus. It depends on your goals.

Where are rental yields highest in South Africa?
Yields vary by suburb and property type and change over time. Compare current rents against current prices for the specific area.

Should I buy investment property in a city I don't live in?
You can, with a reliable managing agent. Factor in the management cost and the risk of not seeing problems early.

Is it better to buy for cash flow or capital growth?
It depends on whether you need the property to carry itself now. Many investors want a mix across a portfolio.

Can one company own property in different provinces?
Yes. A South African company can own property anywhere in the country.

Related reading

• Gross vs Net Rental Yield: The Advertised Number
• The Property Market Cycle in South Africa, Explained
• 3 numbers to check before you buy a rental

Start with the container

The Directors Fortress gives you the investor-friendly offer to purchase, the blueprint for registering the entity, and a walkthrough of the structure I use. R99 once off, yours to keep.

Get started → zahomes.co.za/start-here

This article is general information, not tax, legal or financial advice. Speak to a registered tax practitioner, attorney or financial adviser about your own situation.

Sources

• South African Reserve Bank: resbank.co.za

About the author
Michael Bowen is the co-founder of ZAHomes. He has invested in property for over 20 years, in South Africa and abroad, and teaches investors how to buy and hold property inside a company. His philosophy: an investor's greatest assets are the lessons from their failed deals.