Financial Mail - Investors Monthly
CAPE TOWN IS BOOMING
Where to target growth areas in the housing market
The young German couple that recently forked out a record R290m for a three-storey mansion in Bantry Bay initially wanted to buy a pied-a-terre on the Mediterranean island of Ibiza or France’s Saint-Tropez. It underscores just how desirable the Mother City has become as a global second-home hotspot.
UK-based property group Knight Frank’s Wealth Report 2016 confirms Cape Town’s rising allure among the super-rich and famous, placing it among the 15 most popular sun- and snow-belt investment destinations in the world. According to the report, Cape Town now attracts more high net-worth second-home investors — those with assets exceeding US$10m — than Cannes in the south of France.
Moreover, Knight Frank’s latest house price figures show that Cape Town is now the third-best performing residential property market in the world after Vancouver and Shanghai. Knight Frank’s Prime Global Cities Index, which tracks upper-end house prices in 37 cities, shows that Cape Town recorded growth of a substantial 16.1% for the year ending June. That is well ahead of the average 4.4% increase recorded by the index as a whole over the same time (see graph).
Cape Town’s performance is in stark contrast with the rest of SA. In most other major metros, house price growth slowed to the low single digits in the first half of 2016, no doubt following dismal economic growth prospects and rising interest rates.
Cape Town’s stellar performance was driven by limited supply and a weak rand, says Kate Everett-Allen, who heads Knight Frank’s international residential research division. The report suggests that Cape Town may have lured wealthy buyers away from other traditional global hotspots due to deflationary concerns in the eurozone, uncertainty surrounding the impact of the UK’s Brexit decision and higher
The success of the DA-run local government combined with growing tourism numbers have made Cape Town a sought-after area to live in
property taxes and fees for foreign buyers.
But it’s not only demand from well-heeled offshore buyers that is propping up house prices in the Mother City. Industry players say the trend among Gauteng residents migrating to the Western Cape in search of a better-quality lifestyle is also fuelling demand and prices.
Pam Golding Property (PGP) group CEO Andrew Golding says increased demand from upcountry buyers, coupled with limited supply, has to some extent insulated the Western Cape from the house price fluctuations seen elsewhere in SA. “Cape Town’s coastline and mountains act as a major constraint on the city’s ability to expand, which goes some way towards explaining the outperformance of its housing market despite Johannesburg’s economic dominance.”
Golding says the “semi-gration” trend has bolstered not only the Cape Town housing market but also that of nearby coastal towns and the Winelands area of Stellenbosch, Somerset West and Paarl.
Seeff chairman Samuel Seeff says the success of the DA-run local government combined with growing tourism numbers, both domestically and internationally, have made Cape Town and surrounds a sought-after area to live and invest in. “Consequently, luxury homes in key areas on the Atlantic Seaboard such as Clifton and Camps Bay are now selling for at least 40% more than their counterparts in Gauteng.” He says wealthy Johannesburg buyers are prepared to pay this premium because of the capital-preservation benefits offered by Cape Town.
Latest housing data from property research group Lightstone confirms that there has been a marked increase in Gauteng buyers in the Western Cape over the past four years. In fact, Lightstone analytics director Paul-Roux de Kock says the number of housing transactions concluded in the Western Cape by buyers traditionally from Gauteng last year surpassed the levels reached at the height of the housing boom in 2007.
For would-be home buyers and investors the question is whether the Cape will continue to offer better capital growth prospects than other SA cities. And, if so, which areas of Cape Town and surrounds offer the best buying opportunities?
While past performance is of course no guarantee of future performance, historic price growth numbers do provide a strong indication of which areas tend to be the most sought after.
Lightstone’s data shows that Cape Town’s best-performing suburbs last year were Green Point and Sea Point on the Atlantic Seaboard, Gardens in the
City Bowl and the southern suburbs of Rondebosch and Claremont. Seeff believes the Atlantic Seaboard suburbs of Clifton, Camps Bay and the V&A Waterfront should continue to outperform on the capital growth front. He says there is also growing demand in nearby De Waterkant, Green Point and the Foreshore following billions of rands being invested in new commercial, retail, hotel and residential developments.
Seeff singles out Big Bay and Bloubergstrand Village in Blouberg as Cape Town suburbs to watch. He says Big Bay still offers standalone houses and townhouses below R2m in a number of secure estates.
Sandown Estate and Dune Ridge Estate are typically fetching R5m to R7m, while La Paloma offers a collection of well-priced houses from R3m to R7m. The Island View security estate offers a mix of double- and triple-storey homes in the R1.8m-R2.8m range. “You are basically across the road from the ocean and surrounded by unspoilt fynbos.”
Franschhoek and Stellenbosch in the Winelands, which Seeff says have been major beneficiaries of the semi-gration trend, should continue to lure upcountry buyers, as the area boasts an unparalleled lifestyle offering and easy access to some of the country’s best schools and Stellenbosch University.
Gated lifestyle estates have become particularly sought-after in the Winelands, says Louise Varga, PGP’s area manager in Stellenbosch and Somerset West. She ranks Brandwacht aan Rivier, De Zalze Winelands Golf Estate and Welgevonden Estate among her top estate hotspots in Stellenbosch. At De Zalze, prices typically range from R6m to R26m, but Varga says there’s a growing shortage of stock. Buy-to-let apartments for Stellenbosch students are also a popular investment, with rental yields typically at 6%-8%. In Somerset West, Schonenberg and Bel’Air Estate offer good buying opportunities, says Varga.
Basil Moraitis, PGP area manager for Cape Town’s Atlantic Seaboard and the City Bowl, says while it’s difficult, if not impossible, to predict the level of capital growth property owners are likely to experience in Cape Town over the next three to five years, the Atlantic Seaboard suburbs of Mouille Point, V&A Waterfront, Sea Point, Green Point, Fresnaye and Bantry Bay
are likely to continue to show strong demand amid limited supply. He notes that in the four years to the end of December, prices along this stretch of the Cape coastline have increased by between 141% (V&A Waterfront) and 330% (Bantry Bay).
“The Atlantic Seaboard, which is within easy reach of the CBD, offers a desirable lifestyle and spectacular ocean views in close proximity to the city’s best beaches, restaurants, shops and nightlife,” he says.
Lisa Bathurst, director at Hurst & Wills in Cape Town, says Camps Bay has proved to be particularly resilient during financial downturns, recording an average price growth of 50% over the past five years. “Aside from the obvious lifestyle benefits, Camps Bay is close to both the heart of Cape Town and its beaches, offering a great selection of upgraded holiday apartments and spacious family homes.”
Prices typically range from R5m to R30m. Bathurst says Camps Bay is ever popular with international buyers and local families alike, and offers great value in comparison to its Clifton and Llandudno neighbours.
According to the latest figures from New World Wealth, Cape Town is home to SA’s top 10 most expensive streets. The number one spot goes to Dock Road at the V&A Waterfront’s Marina development, where buyers are prepared to pay an average of R108,000/m².
Other big-ticket streets include The Ridge, Cliff and Nettleton Roads in Clifton at an average R85,000 to R90,000/m²; Kloof Road in Bantry Bay at R82,000/m²; and Victoria Road, which stretches from Clifton to Bantry Bay, at R77,000/m².