The province that never sleeps
The property market in the Western Cape is booming, but it is not without its challenges
Cape Town’s skyline keeps shifting, growing taller as major construction projects change the face of the city. New hotels, high-rise apartment blocks and mixed-use developments as well as the renovation of existing buildings are signs of investor confidence in the Mother City. Cape Town, like many major cities in the world, is experiencing an increased demand for urban residential, commercial and lifestyle solutions. Add the influx of Gauteng and KwaZulu-Natal investors who are relocating their families and businesses to the Western Cape and it is clear that this presents huge opportunities. There are also myriad challenges as demand outweighs supply, driving prices sky-high and calling for a considered approach to urban development. Cape Town’s multibillion-rand property market is showing no signs of slowing. There has been investments worth more than R16 billion in 63 developments within a 1.62km2 radius of the inner city since 2012.
The completion of projects currently underway and in the planning phase will push property valuations in the city to more than R30 billion in 2018, according to the Central City Improvement District (CCID). This boom is likely to continue for the foreseeable future. “A boom is not the same as a bubble,” says Carola Koblitz, communications manager for the CCID. “A bubble happens when overdevelopment has taken place at prices that aren’t absorbed by the market. This happened in the CBD during the global financial crisis of 2008. After this, a great deal of residential property became available, largely through the conversion of underused office blocks in the mid-2000s.” This was before the demand for inner-city living kicked in. “Residential property sales only really began to take off around 2013/2014, and these occurred off a low base,” says Carola. There was a significant escalation in property prices year-on-year between 2013 and 2015. “From 2016 to date there has been a stabilisation of market value. Property prices in the CBD are now falling in line with the market expectations we predicted two years ago,” says Carola.
A CITY ON THE RISE
A focused effort in urban renewal has played a significant role in generating investor confidence in Cape Town. “From the beginning, more than 18 years ago, our main agenda was to turn Cape Town’s CBD around,” says Bulelwa Makalima-Ngewana, CEO of the Cape Town Partnership. At the time, the inner city was characterised by high rental vacancies, absentee landlords and the flight of corporates to the suburbs, with new business parks springing up outside the CBD. “The city environment was relatively uninviting in terms of cleanliness and it was unsafe. Much of this has changed thanks to the establishment of the CCID, set up by the Cape Town Partnership in 2000,” says Bulelwa. “The CCID’s day-today mandate is to ensure that the Cape Town city centre is safe, clean, caring and open for business, and that business investors know this.” In a recent 702 radio interview, Rob Kane, chairman of the Cape Town CCID, said the city is booming as initiatives by private-public partnerships and provincial and government bear fruit. “There is currently an interesting spread of developments, from local government initiatives such as the R86 million upgrade of the Artscape Theatre Centre to private sector buy-in such as the R700 million Tsogo Sun investment in two new hotels,” Rob says. The latter will add 504 rooms to the Cape Town tourism market.
“From the beginning, more than 18 years ago, our main agenda was to turn Cape Town’s CBD around,” says Bulelwa Makalima-Ngewana, CEO of the Cape Town Partnership.
“In a historically divided city such as Cape Town, the provision of safe and welcoming public spaces allows for conversations and connections between people from diverse backgrounds who might not otherwise come into close contact with each other,” says Bulelwa. “Monthly events such as First Thursdays and City Walk provide a reason for people to come to town after hours. There’s an element of play, of being entertained. Likewise, with the annual Cape Town Carnival, people are encouraged to discover a different side to the city.” The vision to turn Cape Town into a 24-hour city that caters for locals and visitors has contributed to its appeal, especially for young professionals.
EXPANSIVE VS EXPENSIVE
“Cape Town is racking up the global awards, and was recently recognised as a major technology hub when it ranked 22nd among the world’s top tech cities in the Savills Tech Cities 2017 report,” says Richard Day, Pam Golding Properties’ national general manager and Cape regional MD. “Although the city has long been regarded as one of the most beautiful to visit, these accolades show that Cape Town is open for business.” He notes that there are two types of cities: expansive and expensive. “In expensive cities such as Cape Town, growth is limited by geographical constraints such as the coastline and the mountain. This limited supply of land, and therefore housing opportunities, will lead to densification and ultimately to higher property prices as demand exceeds supply. This also explains why prices in Cape Town continue to rise, relative to elsewhere in the country. In contrast, expansive cities such as Johannesburg have greater space for growth and price inflation is more subdued. There has been a boom in developments, particularly in the City Bowl but also in residential markets in the Southern Suburbs and on the Atlantic Seaboard. “In the City Bowl, where a rapidly growing residential population is pushing up the demand for accommodation, 16 on Bree’s 350 units, for example, sold out in just two weeks,” says Richard. “Given the demand for a live-work-play lifestyle with the convenience of city living, the price of units in this area has spiked considerably, from about R4 000/m2 in 2004 to the current average selling price of R55 000/m2.”
ADDRESSING THE CHALLENGES
Cape Town’s traffic congestion remains a concern; R1.4 billion has been allocated by National Treasury to the City of Cape Town this financial year for prioritised MyCiTi routes and a rail corridor. Many who work in the CBD spend a huge percentage of their income on transport, says Rob Kane. “It’s a lifestyle choice, to live and play close to where you work. Developers are seeing the demand and the vibrancy of the business hub, and they are putting residential properties onto the market.” Rob acknowledges that more affordable housing is needed in the city but, in a way, the CBD is a victim of its own success. Land prices are too expensive to put in really affordable housing. “That is a reality that we need to find a way to manage and overcome,” he says.
Property developer Blok is actively engaged in rediscovering urban living with a number of developments on the Atlantic Seaboard, in Vredehoek and in the Bo-Kaap. “Development in a city is powerful and positive, when it is done right,” says Blok managing director Jacques van Embden. “We believe that Cape Town is primed for growth, as it is an exceptional city in which to live. But it must be administered under smart and future-facing densification strategies in line with the City’s vision for the kind of city Cape Town is to become. The positives around urban development are that it brings people closer to opportunities for work and education. The challenge lies in ensuring this is done in an integrated way so that more than a privileged few can benefit.” In September, the City of Cape Town announced it was setting aside council-owned land for affordable housing within 5km of the city centre, and invited development proposals from the private sector. It estimates that‚ once completed‚ the developments will benefit at least 4 000 lower-income households.
ON AFFORDABILITY AND URBAN HOMES
To address the need for more dynamic property offerings, Blok has introduced Blok Raw, according to sales and marketing manager Lior van Embden. “This is an innovative and creative extension of the brand aimed at introducing a new range of urban homes in a new price band and in new locations within Cape Town’s growing urban centre. The concept was born out of the rapid escalation of property prices since Blok’s inception in September 2014.” Woodstock, Salt River and Observatory in particular are expanding quickly. Rawson Developers has three properties in Observatory: The Paragon, Madison Place and The Winchester. “These are located in an Urban Development Zone, which entitles investors who rent out their units to claim up to 55% of the purchase price as a tax deduction over 11 years,” says Brad Morgan, sales consultant for Rawson Developers. “There is definitely a need for higher-density living solutions in and around the city.”
Densification is not necessarily something to be feared,” says Mike Greeff, CEO of Greeff Christies International Real Estate. “The trend has already been unfolding in the central Southern Suburbs, such as Claremont, Rondebosch, Wynberg and Kenilworth. A number of properties on which single residences previously existed are now home to desirable upmarket sectional-title apartment blocks.” Mike attributes the stock shortages and a desire for lock-up-and-go real estate to this sector becoming one of the most valuable in the province. Average selling prices have increased by about 12% to 14% per annum. These new developments have actually raised the value of neighbouring real estate, and they bring much-needed income to local business. “In Constantia Upper, there are a number of upmarket developments offering enclaves or clusters of luxury homes with top-end finishes in a gated and secure small estate,” says Mike. And, with the current water shortages, he feels that large gardens and pools are not appealing to all buyers. Talk of imminent densification in suburbs such as Constantia means that a number of property owners are considering subdivision, in other words, capitalising on their land.
Green Point Park is a green space in the middle of the city with play areas and a Biodiversity Showcase Garden | A flea market is set up every day on Greenmarket Square in the city centre | Suburbs like Claremont, Newlands and Kenilworth remain popular because of easy access to the city and excellent schools | Forty on L in the Bo-Kaap is the first development in the Blok Raw division
The sounds of drilling and building are constant all over Cape Town. The view from the balcony of the eighth-floor offices of the Berman Brothers’ The Point commercial development is stunning. It’s a perfect vantage point for witnessing the changing face of the Atlantic Seaboard, with scaffolding and cranes rising out from the basin. Like the inner city, Sea Point has reinvented itself, with urban renewal at the heart of its change. The high-street-and-beach destination of the 1970s and 1980s was replaced by a shadier version in the 1990s and 2000s. Developers Saul and Paul Berman grew up in the area, and never gave up on it. They are excited to see that Sea Point’s Main Road is once again a high street with entrepreneurs, the Mojo Market, restaurants and coffee shops. [Ed’s note: see our Q&A with Saul and Paul on page 80.] The Strand Beach Sea Point apartment block on the slopes of Signal Hill, with views of the Atlantic Ocean, is Berman Brothers’ newest development. The Odyssey is situated in the bustling mini-metropolis of Green Point and Signal Hill, offering the perfect balance between the natural beauty that Cape Town has to offer and accessible urban living.
“Affordability has become an issue for many first-time buyers wanting to get into the City Bowl and Atlantic Seaboard market,” says David Sedgwick, managing director of Horizon Capital Residential. “It has forced many purchasers to become renters instead. I do think the market has run hard over the past three to four years, and we will see a softening of the rate at which prices have escalated.” He feels that in the prime segment of the market there is continued growth and a strong demand for new stock that meets all the requirements. The demand is driving an increase in the development of luxury and boutique apartment blocks catering for cash buyers from Johannesburg and Durban. These investors are looking for a second quality investment property in Cape Town to hedge against the Joburg and Durban markets.
“The strongest house price growth in the second quarter of this year was on the Atlantic Seaboard (29.9%) and in the City Bowl (21.1%). This growth appears to have peaked in both areas as affordability is becoming an issue for prospective buyers,” says Richard Day of Pam Golding Properties. Basil Moraitis, Pam Golding Properties’ area manager for the Atlantic Seaboard, stresses the importance of being guided by free-market principles of supply and demand. “Should the market price of property not be in line with demand, then prices will adjust,” he says. “Growth will continue for as long as buyers seek to acquire the properties on offer. If the market rejects the pricing, it will adjust accordingly.”
“There are some incredibly special properties in the City Bowl and on the Atlantic Seaboard,” says Richard Hardie, Knight Frank manager for the Atlantic Seaboard, City Bowl and Hout Bay. “Buyers with money will pay more than the perceived value because they won’t be able to buy it again, with the increasing popularity of Cape Town property.” Richard sees apartment living growing in popularity, but feels developers will be challenged to make their developments unique and better than the last to meet increasing expectations.
Annien Borg, Pam Golding Properties’ area manager for the Boland and Overberg, says New World Wealth has identified the Paarl, Franschhoek and Stellenbosch region as one of the fastest-growing in the country in terms of private wealth creation over the past decade. It is estimated that about 3 000 high-net-worth individuals – those with a net worth of more than $1 million (about R13 million) and more – live in this area. It’s not surprising that the demand for secure estate living in the heart of the Winelands is significant. Over a decade up to June 2017, Val de Vie and Boschenmeer estates have seen the price of freehold houses increase by about 90%. Val de Vie has retained its position as the top residential estate for the second year running in “The top 10 residential estates in South Africa” report, published by New World Wealth in association with AfrAsia Bank. The report attributes the rating to the estate’s beautiful vineyards, polo fields, highly rated golf course, natural fynbos, parks, lakes and mountain backdrops.
Over the past five years, commercial property prices in the Winelands have increased above the inflation rate, with an active market seeing values increase by up to 15% per annum. Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, believes there are currently few better property investments in South Africa than Winelands commercial space. And Detlef Struck, commercial property specialist for Lew Geffen Sotheby’s International Realty in Stellenbosch and Somerset West, says, “Stellenbosch has a higher concentration of retail and office space, with only a couple of light industrial buildings on the outskirts of town. Demand is especially high in the historical town centre, with little stock currently available.” Annien says the continued migration of South Africans to the Western Cape is bolstering the housing market not only in the Cape Town metro but even in coastal towns from the West Coast to the Garden Route. There’s been massive growth in the property market outside of Cape Town, particularly the northern suburbs of Durbanville and Welgemoed, where investment offers considerable value for money. These areas are popular with buyers looking for a safe environment with the attractions of the Winelands and access to excellent schools, yet still close to Cape Town. All this indicates that the Western Cape has become a desirable destination for property investors, with the Mother City at its core.
The strongest house price growth in the second quarter of this year was on the Atlantic Seaboard (29.9%) and in the City Bowl (21.1%)
Wine farms such as Groot Constantia inform the history and feel of the suburb of Constantia, where the residential property market is experiencing stock shortages
Credits: Photographs: Lisa Burnell, Cape Town Tourism, Craig Howes, iStock by Getty Images, supplied, Text: Lauren Groenewald