The growing demand for property in the Winelands

Private Property South Africa
Private Property Reporter

While the property market in the Cape Winelands remains strong and in demand, the region’s escalating entry-level prices are making it increasingly difficult for first-time buyers to purchase a home.

The property market in 2016 has remained consistent with an average nominal year-on-year growth in property values of between 7% and 10% across all residential sectors in the Winelands.

According to Chris Cilliers, CEO and Principal for Lew Geffen Sotheby’s International Realty in the Winelands, “We didn’t notice a decline in the region’s market last year, largely due to the fact that it’s still primarily driven by an imbalance between supply and demand with stock shortages in most areas continuing to push house price inflation.”

The estate market, in particular, has remained high in demand by a majority of Gauteng investors who seek safe and secure living, as well as convenient access to top-class schools. New properties which don’t require transfer fees, are the most attractive to investors as it offers the potential to achieve maximum returns as a result of lower acquisition costs.

More investors are planning ahead for retirement

According to Cilliers, “Investment buying among individuals is also becoming more prevalent and a significant percentage of these buyers are purchasing homes in which they plan to live at a later stage, so they rent out the properties until they are ready to move.” Many buyers are acknowledging the long-term benefits of securing a retirement home at today’s market price and are choosing to plan ahead for this.

Due to the increasingly high volume of demand for retirement accommodation in the Winelands, many agents in this region are experiencing a shortage in stock as well as a growing waiting list for many of the newer developments.

“More and more people want to retire away from the city and the Winelands is especially appealing as it offers a slow-paced country lifestyle in beautiful surrounds, yet is less than an hour’s drive from Cape Town and a short hop to pristine beaches and popular attractions,” says Cilliers.

The difficulty for first-time buyers in the Winelands

For many first-time buyers and especially for those who require a 100% bond, the rising cost of entry level property is making purchasing property increasingly difficult.

“There is definitely demand at entry level in the Winelands, but banks are becoming more cautious about lending and in our experience, the greatest number of successful mortgage applications fall into the region of 70% to 80% of the purchase price,” says Cilliers.

Cilliers advises that bonds of 100% are a lot more difficult to attain and require strong motivation to succeed. And for borrowers who are successful at obtaining a bond of 100%, they are likely to be burdened with higher interest rates. Saving for a deposit is considered to be a better-suited option, especially for homebuyers who are worried about their finance applications being approved.

According to Cilliers, entry level demand in Somerset West, Stellenbosch and Paarl notwithstanding, the bulk of Lew Geffen Sotheby’s International Realty clients in the area are cash buyers, or people requiring mortgages of less than 60% of their properties’ purchase prices.

Strand is an affordable option for cash-strapped buyers

According to Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, while property prices in most parts of the Winelands may be out of reach for younger, cash-strapped buyers, the Strand, however, is one area which offers excellent value for money. “Strand is one of the few places where it’s still possible to buy a three-bedroom freestanding family home from around R1.8 million, a modern townhouse for under R1m or an apartment for around R600 000, enabling young families and aspiring professionals to get a foot in the market without sacrificing lifestyle,” says Geffen.

The affordability of sectional title properties, on the other hand, has decreased significantly in the neighbouring area of Somerset West. According to Propstats, prices for sectional title units in this area which once averaged around R835 000 in 2015, have since increased to an average price of R1.03 million in 2016.

Geffen warns, however, that buyers should act fast as the price of property in the Strand area begins to increase substantially due to its growing demand. According to Propstats, the average sale price of apartments in Strand between 2014 and 2015 rose from R570 000 to R621 000. By the end of September last year, the average sales price increased to R935 000.

“Houses fared equally well, with the average sale price of R842 000 in 2014 increasing by almost 25% to R1.05m in 2015, followed by an increase of just under 24% to raise the average house price to R1.3m at the end of the third quarter of 2016,” says Geffen.

Cilliers predicts that the combination of stock shortages with the consistency of demand from Gauteng buyers will continue to be the driving force behind the Winelands market.

She does, however, add a word of caution:
“If the Gauteng market flattens more, some sellers may be forced to accept lower prices while others will struggle to sell their homes at all and we would then expect our market to cool somewhat. If that is the case local sellers will have to adapt their expectations in terms of achievable sale prices”, concludes Cilliers.

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