Buying a residential property in the leisure sector remains a risky business

Private Property South Africa
Cathy Nolan

In July, SA’s top property industry players described the residential sector as either slow, quiet, nowhere near recovery, and as one where sales volumes are still trading well below the pre-2008 highs.

In describing the secondary non-primary house market, comments varied from: awaiting the upturn of the primary housing market; generally improved but still under stress; seeing a reduction in over supply in some areas; historic low interest rates has done little to stimulate demand; lower turnover but higher values in high demand areas, to: some geographical areas performing better during 2012 than in 2011.

And so the eagerly awaited upturn in the primary house market, not predicted to take place anywhere in the near future, could not come soon enough for owners of second homes, particularly those in less desirable, remote country areas. Those, who in their wisdom and with the help of industry gurus researched the historical capital returns over extended periods of various geographical regions, were lured by the classic principle of demand and supply in highly desirable lifestyle areas. Some wise investments paid off, and owners are currently seeing shortages of available properties in certain price ranges in high-demand areas, despite a slow market recovery. Property professionals operating in upmarket areas such as Plettenberg Bay in the Eastern Cape, Cape Town’s Atlantic Seaboard, Ballito and Zimbali in Kwa-Zulu Natal, say keeping up with demand for leisure properties ranging from R5-million to R12-million remains a challenge.

Cape Town no doubt remains an investment hotspot for upcountry investors and foreigners, all realising the value of this exclusive holiday destination on the African continent. Denise Dogon, Chief Executive of the Dogon Group on the Atlantic Seaboard, says that although sales turnover in the leisure property market in this area is no different from the slow pace experienced elsewhere in the market, actual values of leisure sales from 2008 to the first half of 2012 have increased. She says that although freestanding beach bungalows are popular, frontline apartment living remains the most in demand holiday home investment on the Atlantic Seaboard, and that their biggest problem is the availability of high quality stock on the beach front. She says that despite Cape Town being an expensive holiday destination, properties in the R10 to R15-million price range in areas such as Clifton and Camps Bay remain most desirable to high net worth migrating clients from Gauteng and Kwa-Zulu Natal. Dogon says another developing trend there is for families to invest in older buildings that can be knocked down and re-built or renovated into ultra modern apartments, as was recently illustrated in the sale of two old apartments sold to a London and local investor for R36 and R45-million respectively.

Dr Andrew Golding of Pam Golding Properties says that while the very top end of the Cape Town market remains quiet, the price range up to about R12 million has picked up considerably with buyers looking for relatively good value. However, he says that although the leisure/lifestyle market remains quiet, the second home market, although improved, is still under stress. “While more interest is evident in this sector of the market, it can still be difficult to secure a sale as a high level of equity is needed on both land sales and second homes for leisure purposes.” In established areas, such as the Atlantic Seaboard, with its world-class coastline and homes, Cape Town’s Southern Suburbs, there has been a significant reduction in the over-supply in the market. He says this is due probably to fewer distressed sellers, an easing of mortgage loan criteria for prospective purchasers, owners electing to take their properties off the market for the time being and, also, fewer investor-owned properties.

Holiday homes in Kwa-Zulu Natal are fast increasing in popularity say agents in this region. Golding says the North Coast of KwaZulu-Natal, around Ballito, has seen an upturn as the market still revolves mainly around the leisure segment, with the greatest demand on, or close to, the beachfront. Sectional title properties are being sold in the price bracket from R1.5 million to R3 million, while full title residential homes are selling in the R1.75 million to R3.5 million bracket.

Samuel Seeff of Seeff Properties says sales volumes in the secondary/leisure market are still significantly down on their pre-2008 highs, an event considered as normal market activity. He says that while holiday homes are selling in the lower price levels, around the sub-R5 million mark, sales are sporadic and generally seasonal, i.e. there is usually a rally on sales over the summer months and this then softens over the winter months. As a result of the low demand, however, there is a significant oversupply of property combined with low demand in many of the country’s coastal markets, allowing buyers to negotiate strongly and find exceptional value. Seeff says recommended areas for secondary home investments are Cape Town’s West Coast, with stunning homes currently on the market below value in Knysna and Plettenberg Bay along the Garden Route, and that the KZN South and North Coast and Ballito and Zimbali remain popular.

Given the prevailing economic climate, Seeff Properties’ Ian Slott says Atlantic Seaboard apartment sales, especially in the sub-R5 million price range continue to perform well as buyers still find exceptional value. He says that because the Atlantic Seaboard is regarded as the country’s premier primary and secondary home market, limited space and available properties form combined forces, ensuring that properties retain their values. As far as freestanding second homes are concerned, he says more sellers are pricing in line with what buyers are prepared to pay, and properties are selling for reasonably close to the asking price. Slott says sales at 20% below asking prices do occur, but only where there is urgency on the part of the sellers, such as relocations or the consolidation of finances.

Golding says the Garden Route remains sought after by families, nature lovers and golf enthusiasts, and is reflecting slow improvement based on well-priced offerings, such as in Sedgefield where a sharp increase in demand has been seen in the past nine months. He says the Eastern Cape, after the collapse of the holiday home frenzy in the boom days, is seeing renewed interest in land, and Jeffreys Bay and St Francis have seen significant increase in land sales secured in order to build leisure homes. Golding says a current hot spot in leisure home demand is Kenton-on-Sea where the density of both private and public schools in Grahamstown has created the need for a family recreation base, and the great beaches and views in Kenton have met this demand.

Seeff Properties Plettenberg Bay’s Kevin Engelsman says this area remains a premier coastal market, especially for Gauteng and other buyers, and although sales volumes dropped significantly since 2008, so far its 2012 performance has been remarkable. Engelsman says Seeff has experienced doubled sales for year to date compared to 2011, showing a 67% increase in Rand-value, and 76% increase in unit sales. He says this market is slightly up compared to the sluggish 2011, with renewed energy in sales around the R4,5 million to R5,8 million mark, and a recent high value sale of R24 million. He says buyers were mostly from Gauteng, and four foreign buyers are from Norway, Switzerland and the UK.

About the upcoming summer period, Denise Dogon says that prospective buyers from upcountry are already planning their property viewing for the peak season from December to February 2013. She says although activity in this segment of the market is not possible to predict, steady interest is expected during the upcoming peak season.

Golding’s prediction for leisure property sales in the prime holiday season from December 2012 to February 2013 is that there will be a continuation of the trends identified above, with the possibility that a weakened rand may well attract international interest once more.

Seeff says that for now, it seems that recovery of the primary housing market is still about 18 months to two years away, and only once the primary housing market recovers, can an uptick in the secondary, leisure and investment market be expected.

By Anna-Marie Smith

Originally published in Property Professional (Sept / Oct 2012)

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