Property investors flocking to one South African province

Property investors are pumping money into the Western Cape, with individuals increasingly financing homes in the province for buy-to-let ventures. 

South Africans are tapping into the growing demand for rentals in coastal areas as a way to build passive income streams and create wealth. 

Data from Standard Bank revealed that one in eight mortgage applications across South Africa in 2024 were for buy-to-let properties. 

The Western Cape is leading the way in this regard, with 31% of all mortgage applications in the province linked to buy-to-let ventures. This is more than double the national average of 12%. 

“Over the past decade, the Western Cape has consistently positioned itself as an investment destination,” said the head of personal and private banking at Standard Bank, Chiko Manokore. 

“Areas like Cape Town have benefitted from consistent demand driven by tourism and a growing expat community.” 

Interest in bed and breakfasts (B&Bs) and stand-alone homes within estates has surged, particularly over the past five years. 

The province also ranks second – after Gauteng – in terms of building loans issued by Standard Bank, with a significant portion taken up by buy-to-let investors.

“You are seeing more uptake for large estates, lots of bread and breakfasts and interestingly, a growing number of people building multiple properties in a single stand,” Manokore said.

Gauteng, South Africa’s economic hub, continues to show strong buy-to-let activity, nearly double the national average. 

Tshwane is leading in this regard, and the province’s rental market is driven largely by investors seeking additional income streams. 

“In Johannesburg, property investment tends to focus more on longer-term rental income, unlike the Western Cape, where short-term rentals are particularly popular.” 

The Eastern Cape has also become a key player in the buy-to-let market, attracting more property investment than the national average. 

In contrast, KwaZulu-Natal has seen lower buy-to-let activity in the past year. Only 6% of home loan applications in the province are linked to property investment.

“KwaZulu-Natal, unfortunately, has lost some speed, especially in the last few years, because of the many challenges it has faced. Environmental setbacks such as floods and the 2021 riots have impacted investor confidence,” Manokore said.

This data supports another trend emerging in South Africa’s property market: the increase in loans taken out to construct multiple units on a single property stand. 

Individuals and businesses often do this to generate short-term rental income or because they can no longer afford to finance a larger single property. 

Despite high interest rates and a buyers’ market, high-income and affluent individuals continue to build their homes while others take out top-up building loans to expand existing ones. 

Standard Bank said that while building loans have declined since 2022, clients aged 30 to 50 remain active, particularly those earning over R50,000 a month. The average value of these new building loans has increased compared to two years ago.

Gauteng leads in building loan registrations, followed by the Western Cape. Both provinces also top the list regarding customers taking out additional or top-up building loans.

These top-up loans are often used to construct multiple units on a single stand to generate income or to effectively split up the monthly repayments on a property. 

“These owners typically don’t plan to sell and prefer not to sectionalise due to time and cost,” head of Standard Bank Home Services Toni Anderson said.

Another growing trend is converting properties into multi-tenanted dwellings for rental income. However, banks avoid lending for such projects due to zoning issues and inadequate infrastructure for the number of tenants.

Building multiple units without sectional titles may seem costly now, but it could save headaches in the future as market conditions and personal circumstances can change quickly. 

For example, many investors who build larger homes for rental income often face the need to downsize as they approach retirement. 

They may encounter unexpected financial setbacks and be forced to sell quickly, often at a loss.