Although house prices in Cape Town have softened after years of outstanding growth, it should not be seen as a cause for alarm.
News that the Cape’s dams are more than half full is welcome news for the metro’s property market as we move into the second half of the year, says Pam Golding Properties. Allayed fears of water scarcity will undoubtedly reinforce the seasonal market rebound usually seen in the early months of spring.
Natural price adjustment occurring
There’s also been much talk of late about the softening of house prices in the Cape metro, which until recently was the top performing area in the country, but this should not be seen as cause for alarm. “In fact, this price correction should be viewed positively for the market,” says Richard Day, Pam Golding Properties Group General Manager. “After more than a decade of accelerated house price growth, especially in areas such as the Atlantic Seaboard where property prices increased by 650% in the past 15 years, what we are seeing now is a natural price adjustment.”
Seen in perspective, the fact is that the Western Cape remains a desirable place to live and invest, and it is still the top performing regional market, with a 10.6% price increase from January to June 2018 (PGP Index). The national average was only 4.25%. The gap may be closing between house prices in the Cape metro and other cities, but the slowing of house price appreciation in some of the city’s property hot spots has also had the concomitant effect of boosting the market in others. House prices in suburbs close to the City Bowl, such as Woodstock and Observatory, offering many of the same benefits as their more expensive counterparts, are showing signs of positive growth.
Basil Moraitis, Pam Golding Properties area manager of the Atlantic Seaboard, notes that the recent price stabilisation, while expected given the unsustainable rate of inflation over an extended period, has also been compounded by several concurrent factors, including concerns about water scarcity. Added to this has been the seasonal slowdown usually experienced during the winter selling period. “The effect of all these issues is to overstate the severity of the correction in pricing.”
Property along the Atlantic Seaboard will always be in demand, given that the mountain and the coastline create natural geographical constraints hindering extensive development. Units in new developments are therefore quickly snapped up by investors and buyers seeking modern, urban living along the coast.
The growth of residential accommodation in the Cape Town’s city centre attests to the demand for an urban live-work-play lifestyle. According to the Cape Town City Improvement District’s “The State of Cape Town Central City Report 2017”, property developments either under construction or in planning for completion by 2020 “conservatively” indicate an investment value of R14.3 billion. The CCID reports that reasonably priced units in the city are highly sought after. The median time units spent on the market increased slightly to 58.6 days, with the sale of several properties within a week of being listed indicating that “the market continues to be buoyant when the price is right”. Last year, residential unit prices showed a year-on-year percentage increase of 18.5%. The average price of the units sold during the first half of 2018 was R2.33 million, down slightly from the overall average sales price in 2017 of R2.769 million.
Buyers are still buying and tenants are still renting, and properties that are at market-related prices will sell, says Emarie Campbell, Pam Golding Properties area manager for the Western Seaboard. That being said, the current shift in the market means that savvy buyers are shopping around before committing to a property purchase. “This is not the time for sellers who are not serious to test the market. An oversupply of incorrectly priced stock will worsen the surplus and ultimately affect house prices.”
Rental activity in Cape Town
Rental activity has been fairly brisk in recent months, but most of this is from tenants “shopping around”, says Dexter Leite, Pam Golding Properties Cape Rental Manager. “The usual winter seasonal slowdown as well as the numerous new-build developments coming online, coupled with the Airbnb properties coming onto the longer-term market, has added to the current oversupply conditions and pressures on rentals.” He adds that some areas and market segments are more affected than others. “Correctly priced properties that offer the perceived best value, will let sooner,” says Leite.
Sandra Gordon, Pam Golding Properties research analyst, says that Cape metro house prices have run so hard for long that we were due for a “breather” to allow the market to adjust to economic realities. She adds that one of the key drivers of any housing market is demographics, and South Africa has age on its side. Almost two-thirds of the population is under the age of 35 years, so the demand for young South Africans wanting to gain a foothold on the property ladder will continue to boost the local housing market.
Moraitis notes that certain segments of the market are less likely to be as impacted during this repricing phase. The demand for traditional free-standing homes should return to normal levels after the winter, and the upper-end of the market in areas that have not seen a proliferation of new development sales will also pick up. “So, while the current market offers an opportunity for the astute buyer, it is unlikely to last for very long as the fundamentals of owning a property in Cape Town – such as the enviable lifestyle – remain as compelling as ever.