A TALE OF MANY CITIES
Cape Town may still be flying, but housing markets in the rest of South Africa are floundering, so think carefully about where you buy your next home
Can you still make money from residential bricks and mortar? A glance at some selling prices in recent times would make you think so.
Earlier this year, a Russian buyer (who seems eager to keep his identity secret) forked out R150m for a Clifton mansion. Down the drag, a
Swiss couple splurged R80m on a beachfront residence in Llandudno, and another Russian paid R71m for a home in Fresnaye, while a buyer from the US paid R53m for a house in Clifton.
Now, the triple-storey mansion on our cover this week —“the White House”, in Alexander Avenue, Fresnaye, on the slopes of Signal Hill — is on sale for a staggering R300m. That price would set a residential property record, exceeding the R290m that a German couple paid for a Bantry Bay villa in 2016.
The R300m price tag equates to $15.7m — which seems a bargain in global terms for a 1,400m² house with six bedrooms, eight bathrooms, a cinema, wine cellar, fully equipped gym with sauna and ice-bath, and museum-quality art.
But it’s an illustration of how Cape Town — and the broader Western Cape — has seen a spike in foreign buyers over the past 18 months, no doubt fuelled by jittery international investors keen to diversify assets away from war-torn Eastern Europe and Middle Eastern regions. The trend has provided a strong underpin in suburbs where price tags typically exceed R10m.
The latest data from PropStats, the online database of the Western Cape branch of the Institute of Estate Agents of South Africa, shows that 85 R20m-plus properties in Cape Town have been sold to foreigners so far this year nearly double the 49 of 2019.
And yet, this explosion in mega-mansions in Cape Town may have distorted the picture. The rest of the country isn’t seeing these sorts of prices, as the FM’s annual suburb survey reveals. The survey shows the post-pandemic property boom has well and truly ended.
Lowest growth in years
The most recent figures from the deeds office show the number of houses that changed hands countrywide slumped 22% in the third quarter, year on year
(see graph). Sales volumes are now 25% below the seven-year peak recorded in 2021.
Worse yet is that house price growth has slowed to a 14-year low, with the residential property market barely hanging on to positive growth. FNB’s house price index dipped to 0.5% in November, down from the still-decent growth of 3.2% a year earlier.
Worryingly, this is the lowest growth recorded by the bank since 2008/2009, when the global financial crisis pushed its index into negative territory. That was the only time in the past 22 years that FNB recorded a nominal decline in national house prices (see graph).
It seems increasingly likely that the market is heading for a repeat of that slump. It’s no real surprise, given how hard consumers have been hit by aggressive interest rate hikes mortgage repayments are up 40% since November 2021 and rocketing food and fuel costs.
Homebuyer confidence has been further hit by rising property rates and taxes amid collapsing municipal service delivery, a brittle economy growing at less than 1%, relentless load-shedding, and a depressingly weak rand.
The bad news is that household finances are likely to remain constrained until the second half of 2024. That will
Migration to security enclaves, estates and complexes is likely to continue into 2024 and beyond
Samuel Seeff
limit consumers’ ability to take on more debt, which in turn will place a lid on housing activity, says FNB economist Siphamandla Mkhwanazi.
He expects diminished affordability amid higher-for-longer rates to weigh on housing demand and prices “until inflation and borrowing costs ease more meaningfully from second-half 2024”.
Adding further gloom to this picture is that house prices have already dropped in nominal terms in three major metros. Joburg prices have unwound the fastest, with an average 1.5% year-on-year decline in Q3, according to FNB’s housing data for individual cities. Gqeberha and eThekwini are the second- and thirdworst performing metros, down 0.4% and 0.3% respectively over the same period.
Cape Town — as the sales to foreign buyers illustrate — is the clear exception to this trend. That city is still notching up growth of more than 3%, cementing its position as the country’s top-performing housing market.
It’s an illustration of how the Mother City’s housing market has decoupled from the rest of the country.
Mkhwanazi ascribes Cape Town’s rally partly to semigration, with wealthy individuals continuing their trek from inland provinces to the Western Cape.
The city’s allure as a property investment hotspot may initially have been sparked by the pandemic-induced remote working trend, but more recently governance issues have become the key driver. The DA-run metro is rated highly in terms of municipal service delivery and infrastructure upkeep — as the auditor-general’s report confirms — and experiences less load-shedding than the rest of the country. It expects to significantly reduce its reliance on Eskom within the next three years.
This is one reason, with the rand so weak, foreign buyers are getting a bargain in a relatively well-run province.
However, the Western Cape isn’t the only region that still offers capital growth potential. Harcourts South Africa CEO Richard Gray says there’s no doubt that residential real estate still has a role to play in wealth preservation — whether you are buying in Cape Town or Carletonville.
But if homebuyers want to see a decent return on investment over the next few years they need to become more discerning in terms of what — and more importantly where — they buy.
The cliché “location, location, location” is more relevant than ever given the slowdown in sales and price growth, according to Gray. However, he warns it will take longer for homebuyers to realise capital growth over the next few years than it typically did five-10 years ago, when most cities were still recording inflation-beating house price growth.
“Homebuyers need to increase their investment return horizons as property should be regarded as a longterm investment,” he says.
But where and what should you buy if you’re looking to secure above-market returns?
Andrew Golding, CEO of Pam Golding
Properties (PGP), believes that the suburbs with the best value retention and growth are generally those where residents invest in the upkeep of their properties.
He urges buyers to research the factors that affect demand and values in particular areas. These include local crime statistics, the average length of stay of residents and ease of access to arterial transport routes, schools, shops, hospitals, leisure amenities and business nodes.
Seeff Property Group chair Samuel Seeff says something similar. While a good location means different things to different people, ever-rising crime and deteriorating municipal service delivery are key criteria that will likely continue to drive property returns across South Africa.
“Migration to security enclaves, estates and complexes is likely to continue into 2024 and beyond,” he says.
Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, believes the ongoing work-from-anywhere culture will bolster capital values over the next few years.
“As remote work becomes a longterm reality for many, homebuyers are prioritising properties that offer dedicated home offices, flexible workspaces, and robust internet connectivity,” she says.
There’s also increased demand for properties with green features to reduce reliance on Eskom and municipal water supply. Geffen refers to solar panels, rainwater harvesting tanks, sustainable construction practices and eco-friendly building materials as key selling points.
She also expects an ongoing shift towards “community-centric” living, with younger buyers in particular gravitating towards walkable neighbourhoods. The trend has led to the rise of a new generation of mixed-use developments that integrate residential, commercial, retail and recreational spaces.
The general view among industry players is that suburbs that remained resilient amid pandemic-induced shifts in buying patterns and surging interest rates will most likely continue to outperform over the next few years.
With this in mind, the FM has taken a five-year view in this year’s top suburbs rankings, the 12th year in which we have partnered with research and analytics group Lightstone to rank individual suburbs and estates in the capital growth stakes.
The survey covers the four major metros — Joburg, Cape Town, Tshwane and eThekwini — in three price categories: the middle segment (R1.5m-R3m); the higher end (R3m-R5m); and the luxury market (more than R5m). We only considered suburbs and estates where more than 10 sales a year were recorded. x