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Affordability is the key in Cape Town’s CBD

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Market is slowing and developers and investors are advised to look at inclusionary housing

Property developers looking to secure a stake in Cape Town CBD’s lucrative residential market are warned of its impending saturation point and advised to keep affordability levels in mind if they intend bringing new units onto the market.

This does not mean the city centre is not still a strong option for property investors, but developers need to take note of the market’s slowing down, especially in the area’s upper price ranges.

According to The State of Cape Town Central City Report: 2017 – A Year in Review, 205 residential units in the CBD were transferred last year. Of that number, only 40 were sold for more than R50000/m².

However, Rob Kane, chairman of the Cape Town Central City Improvement District (CCID), which publishes the annual report, says 102 units (exactly half) sold for between R20000/m² and R39000/m².

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“This speaks to where demand still lies, versus where overheating may be occurring,” he says. “Developers bringing new units on to the market now and going forward and investors who bought in the hope of making a strong return, must understand where the central city’s market saturation point is, and where the need lies.”

Kane says developers thinking of entering this market must remember that a downtown thrives on having a residential community of both owners and rental tenants who can afford to live there.

Developers should, therefore, keep affordability in mind when bringing new units onto the market, says Carola Koblitz, CCID communications manager and editor of the report. 

The report, which is a guide to the CBD’s economic climate, says the average unit price of those sold last year was just under R2.77million, an increase from 2016’s average of about R2.34m.

A map of the footprint of the Cape Town Central City Improvement District. Picture: The City of Cape Town

This translates to an average cost of R41287/m², up from R33921/m² in 2016. And while the average cost of units is going up, their average size is coming down, Kane says. 

“The average size sold in 2016, was 71m², but this has decreased to 52m² across the units transferred last year. Obviously this is indicative of what one finds in CBDs across the globe as these destinations gain in popularity with residents seeking a downtown lifestyle.”

Although this is also indicative of the strong central city property market over the past few years, Koblitz says one needs to remember such prices came off of a low base, particularly following the global bubble which burst in the late 2000s, and which “stagnated the residential market place for a number of years”.

Koblitz says developers must be “realistic and responsible” with the return on investment expectations they create and promise investors who are looking to buy units off plan now and then possibly flip when they are transferred.

She says often prices in traditionally more expensive areas directly surrounding the city centre, such as the V&A Waterfront and along the Atlantic seaboard, are quoted as being related to the CBD.

“A quick glance at sales figures of units transferred overall in the Atlantic seaboard during 2017 shows the average rand per square metre to be R54752, while the V&A Waterfront averages out at over R100000/m² for the same period.

“The central city, at an average R41287/m², is far off those marks, and we urge anyone involved in developing or selling residential property here to be responsible when establishing the potential selling price of existing units, or in quoting future numbers on returns to potential buyers or media.”

Future opportunities will lie in well-priced units affordable to professionals across the broad economic base who work in and desire to live in the city centre. What this means, Kane says, is developers and others looking to invest in the CBD should consolidate, reassess and “carefully consider where the future residential demand will really lie and how to supply that demand”.

They should also analyse data gathered by the CCID over the past six years, which indicates the market slowing down and levelling, particularly in the resale of units above a certain price range. Koblitz says: “The CCID has advocated for more affordable options for a number of years. We believe it’s a matter of time before the City of Cape Town places policy on the table that will affect all developers in terms of inclusionary housing.”

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