Cape Town's tourist appeal has made it a prime investment area for short-term letting.
Image: Henk Kruger/Independent Newspapers
Cape Town and the Western Cape stand apart as South Africa’s most resilient and consistently outperforming residential market . This is a position reinforced by hard data, frontline agent experience and sustained international capital inflows.
According to Lightstone’s mid-2025 residential property market dashboard, the Western Cape continues to “punch above its weight” in residential transaction values, despite having a smaller GDP and population than Gauteng.
It's no wonder that holidaymakers are eyeing the region for investment during the holidays here.
However, while buying an investment property in Cape Town remains attractive, first-time investors d need clarity before committing capital. Strong demand, low vacancies and limited stock continue to support the market, yet affordability, regulation and costs require careful planning.
Below are the most frequently asked questions investors need answered before buying.
Cape Town continues to outperform the national market. The Western Cape delivers outsized residential transaction values relative to its population and GDP, while Cape Town recorded an 8.5% annual house price increase to January 2025, well ahead of the national average. A vacancy rate of about 1% reflects sustained rental demand and limited supply, supporting both income and long-term value.
Interest-rate cuts between September 2024 and May 2025 reduced the prime lending rate from 11.75% to 10.75%, improving affordability. Home loan applications rose by more than 10% in early 2025, signalling renewed buyer confidence. However, competition remains intense, especially in the middle market, making preparation essential. However, if you have the money - it is always a good time to buy, say the experts.
Location is critical. Areas close to employment hubs, transport routes, lifestyle amenities, schools, universities and the coast tend to attract consistent tenant demand. The City Bowl, Atlantic Seaboard, Southern Suburbs, False Bay coastline and West Coast corridor remain popular, while more affordable coastal towns such as Strand, Gordon’s Bay, Muizenberg and Fish Hoek offer lower entry points. Coastal and lifestyle areas have continued to outperform inland markets, supported by semigration and tourism demand.
Both options exist, but the choice must suit the property and location. Long-term rentals offer more predictable income, while short-term letting benefits from Cape Town’s strong tourism seasons but is highly seasonal. Investors should assess whether rental income can comfortably cover costs during quieter winter months.
Short-term letting is legal, but it is regulated. Municipal by-laws, zoning rules and sectional title conduct rules apply. Many apartment complexes restrict or prohibit Airbnb-style rentals, so written confirmation from the body corporate is essential before purchasing.
Beyond the purchase price, buyers must budget for transfer duty, conveyancing and bond registration fees, municipal rates, levies, insurance and maintenance. Short-term rentals carry higher operating costs, including cleaning, laundry, utilities, internet and management fees.
Bond pre-approval is critical in a competitive market. It clarifies affordability, strengthens negotiating power and reduces delays once an offer is accepted. It also helps investors avoid overextending themselves in a market with rising prices.
Rental income is taxable in South Africa. Investors must understand income tax obligations, allowable deductions and record-keeping requirements. Insurance should also be reviewed, as standard homeowner policies often do not cover short-term letting or guest-related risks.
Property works best as a medium- to long-term strategy. Holding an investment allows rental income and equity growth to offset market cycles and transaction costs. A strong Cape Town investment is one that remains viable as a long-term rental, resale asset or future primary residence.
Underestimating risk and costs. Successful investors plan conservatively, stress-test affordability, understand regulations and buy properties that appeal to a broad tenant market. In Cape Town’s supply-constrained environment, quality, location and compliance remain the most reliable fundamentals.
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