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Price decline: Can you afford to buy a luxury home yet?

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Stats show prices of posh homes in the most exclusive areas are declining as battle for bargains grows. By Vivien Horler

Property professionals say the industry, especially in the luxury residential market, is in the doldrums, but this can be good news for people with aspirations. 

Figures just released by FNB confirm that prices of luxury homes – defined as properties starting at R3 million – are static or declining in many of South Africa’s most sought-after suburbs.

This means sellers are now more willing to negotiate so this is the best time to buy, says Rory O’Hagan, head of Chas Everitt International property group’s luxury portfolio division. Recent FNB statistics show, for example, that the rate of house-price growth on the Atlantic Seaboard, which is the country’s most expensive area, fell from a high of 25.5% in the first quarter of 2016 to -5.1% in the first quarter of this year.

“Similarly, prices in Cape Town’s southern suburbs, including areas like Constantia, Bishopscourt, Newlands and Claremont, are currently declining at the rate of 2.4% a year after reaching a peak annual growth rate of 15.4% in 2015.

“This sort of decline is a signal to savvy buyers that there is excellent value in some of the city’s most sought-after residential areas. Schalk van der Merwe, franchisee at the Rawson Properties Helderberg Group, suggests buyers question whether a professional or a seller valued the property.

“The last thing you want to do is make a cheeky offer only to discover the property was overpriced by a seller to begin with and you’ve still overpaid.” Richard Hardie, chief executive of Knight Frank SA, says the market is very good for people who want to upscale because “they’ll get much more now than they would have previously.

Prices have softened so they can now get something within reach”. Hardie says it is also not a bad time to sell. If properties have been hanging fire, softer prices could mean an achieved sale. “Yes, it’s potentially a good time for people with luxury homes to sell.”

O’Hagan says: “We have seen many sellers in Joburg’s top suburbs and luxury lifestyle estates all around the country reduce their asking prices in recent months.

“In Hyde Park, for example, new cluster homes that were for sale at R28m are now priced at R20m, and a home originally listed for R19m is now available for R15m.”

His company’s luxury portfolio teams in estates such as Val de Vie in the Cape Winelands and Zimbali in KwaZulu-Natal report a similar trend, with asking prices dropping in the past month from R16.9m to R13m, from R15.9m to R12m, and from R13.9m to R11.5m.

This means that for people who want to upscale, there is now an opportunity to acquire more home for their money than they might have expected. “On the other hand, those looking to downscale may be able to afford a more upmarket location or more luxurious finishes, while those who’ve been trying to break into the luxury sector may find they can afford to do so.”

The appetite for luxury property around the world is currently also boosted by volatility in equity markets, which traditionally prompts investors to turn to brick and mortar.

“Locally, it seems there may be an interest rate cut this month which would further boost demand. But as things stand, we are already seeing a positive response to lower prices in many of our heritage suburbs, where our luxury portfolio teams have sold homes worth more than R300m in the past few weeks.”


Foreigners still drawn to our affordable top-end market

OPENING NEW DOORS With average salaries in Europe and the US higher than those in
South Africa, luxury property here is affordable for many foreign buyers. Picture: Supplied

Agents have noted there is still significant interest in certain areas of South African property from international buyers who they believe they get more bang for their buck than in comparable areas abroad.

Recent research by Deutsche Bank shows the average salary in San Francisco in the US is more than five times the average salary in Cape Town, and in Zurich it is more than four times the Cape Town or Joburg average, says Rory O’Hagan, head of Chas Everitt International property group’s luxury portfolio division.

“This indicates luxury property in South Africa is affordable even to the average earner in many parts of the US and Europe.” However, sales to ex-pats have been diminishing “because of the political climate and there has been a notable decline in this buy-to-let sector.

“South Africa has much to offer international investors and expats, including excellent value against major currencies. The only thing lacking is economic and political stability to foster investor confidence and assuage the current cautious sentiment.”

Richard Hardie, chief executive Knight Frank SA, says there is still considerable foreign interest in highworth South African property. “We’re definitely seeing this compared with last year. A property we had on the market in Bakoven for R32 million literally saw the United Nations view it over 10 days. It eventually went for R25m to a foreign buyer.”

Hardie says foreign buyers are taking advantage of fluctuating currency exchange. “The most recent sale of land in Camps Bay was again an international buyer.”

Chris Cilliers, chief executive and principal for Lew Geffen Sotheby’s International Realty in the Winelands, says they are still seeing considerable interest, especially from European buyers.

Currently concluding a R19m sale with German investors with another for more than R50m pending, Cilliers says most inquiries come from German and Swiss buyers. The company was impressed by the interest shown at the Hafengeburtstag Hamburg last year.

“We showcased Val de Vie Evergreen retirement village. Most attendees who expressed interest were undeterred by the water situation or land expropriation issue.” Constantia is an area where foreign and expat investment have remained relatively consistent, says Joanna Thomas, area specialist for Lew Geffen. 

Adrian Goslett, regional director and chief exec of Re/Max of Southern Africa, says sellers in the luxury market should expand marketing efforts to reach international audiences.


  


Prices softening: Top areas hit hard

DECLINE Atlantic seaboard house-price growth has plunged. Picture: Austin Distel



How the different areas are faring:
FNB’s 1Q19 City of Cape Town SubRegional House Price Indices showed softening prices across virtually all subregions, with the upmarket sub-regions in and around the Cape Peninsula the hardest hit, according to the latest FNB stats.

Atlantic Seaboard is the most expensive sub-region in the City of Cape Town Metro, this area has seen its average house-price growth plunge from a multiyear high of 25.5% y/y in 1Q16 to an alltime low of -5.1% by 1Q19. The sub-region was the first to slide into contraction, with -0.08% y/y growth in 3Q18. The deflation appears to have spilled over to the rest of the regions near Table Mountain. 

The City Bowl, the economic hub of the region, slid deeper into contraction in 1Q19, registering -2.0% y/y from a mild contraction of 0.2% in the previous quarter.

The southern suburbs (incorporating suburbs such as Claremont, Newlands and Observatory) followed suit and contracted by 2.4% y/y in 1Q19, from a peak of 15.4% y/y in mid-2015.

The eastern suburbs (incorporating suburbs such as Woodstock, Maitland and Pinelands), which for some time held up better than the rest of the regions surrounding Table Mountain, declined by 4.2% y/y in 1Q19.

Moving down the price ladder and away from the mountain:

Northern suburbs (generally in the middle of the price spectrum) are holding up relatively better, but are showing a sharp deceleration in house-price growth. For some time these regions were perceived as offering more affordable housing opportunities as affordability deteriorated rapidly nearer the mountain. Ultimately, prices overshot and completely counteracted their initial attractiveness. Unsurprisingly, as demand slowed, price growth slowed.

Bellville-Parow and surroundings (including Goodwood) and DurbanvilleKraaifontein-Brackenfell sub-regions slowed to 4.0% and 2.9% y/y from 6.1% y/y and 4.2% respectively.

The western seaboard sub-region registered 1.8% y/y in 1Q19 from 3.8% y/y in 4Q18.


Lower priced regions holding firm’

STEADY Prices in the Cape Flats region, including Manenberg, are doing well. Picture: Tracey Adams/African News Agency (ANA)


The more affordable sub-regions in the city, which incorporate township areas, are performing well above the city’s average and remain in the double digits. 

The Cape Flats region has held relatively steady around the 12% mark over the past year, although it retreated to 11.3% y/y in 1Q19 from 12.1% in 4Q18. 

The Elsies River/Blue Downs/ Macassar region, where growth has been cooling over the past year or so, now appears to be stabilising around the 10% y/y mark, and is the only region that did not experience slowing prices in 1Q19. Average house-price growth ticked up to 10.5% y/y in 1Q19, from 10.1% in 4Q18.

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