Investors need to be smart about where and what they buy during challenging economic times
Many potential property buyers have been playing the “wait-and-see” game in the bleak economic conditions, but experts believe property remains one of the safest forms of investment.
Declining property prices, the sluggish economy and fears around land expropriation without compensation may be eating away at this thought, but Hugo Venter, executive director at 12Cape, says there are “still real opportunities” in the South African property spaces.
However, buyers and investors do have to invest in the right property vehicles in the right areas. Residential property prices are down overall, but there are still positive signs, one of which is that Cape Town saw a surge in firsttime buyers in the second half of 2019. Sales were 3.3 times higher than in 2018.
“Prices in the Mother City, meanwhile, have risen at 6.6% against a national average of 3.9%.” A noticeable increase in buyer interest was seen in South Africa following the Rugby World Cup win in November, says Mike Greeff, chief executive of Greeff Christie’s International Real Estate.
“These positive events of national significance appear to impact on those with liquidity, particularly in the R5 million-plus sector, and there are a significant number of buyers who fall into that category. It’s often something positive that provides the tipping point to make a decision and buy property. People do want to believe in a future in South Africa, and particularly in the Western Cape. The Atlantic seaboard, in particular, continues to deliver solid investment value, Venter says.
“After briefly finding itself under pressure, activity is again on the up. Given the area’s desirability and proximity to tourist hotspots, Blue Flag beaches, and the Sea Point Promenade, that should hardly be surprising.”
The end of the water crisis and relaxation in visa requirements for visitors from several countries should also result in a resurgence of tourist numbers, and this means the tourism sector could offer good property investment prospects.
“Statistics collected by the City of Cape Town reflect significant increases in the number of visitors who booked flights to the city for the December 2019 to March 2020 period. With easy access to many of Cape Town’s top tourist destinations, the Atlantic seaboard will be as appealing to many new tourists as it is to existing visitors. They’ll also bolster a strong annual contingent of business visitors.”
Investors could do far worse than to invest in hospitality-based real estate, Venter says. The sales volume in the south peninsula was up 10% last year compared to 2018, and surpassed the full 2017 year sales volume, which was also better than 2018, Greeff says.
“This is encouraging in what is otherwise a rather flat market. What we have seen in the region is some increased market activity and a moderately decreasing listing time. The difference between asking price and realised price is also narrowing from its widest at 12% to 9%.”
He says the primary reason behind the increased sales volume is that most sellers are not in a position to hold out for the possibility of a market recovery, and are being forced to transact.
Properties are therefore being brought to market at appropriate prices. The Kommetjie and Scarborough markets should also see improvement once the rehabilitation of the Kommetjie Road and Ou Kaapse Weg intersection, which saw traffic congestion having a negative impact on sales, is completed.
Others areas expecting growth, Greeff says, are Constantia, Kenilworth Upper, Claremont Upper and the western seaboard in Brooklyn. Although the average price for first-time buyers in the Western Cape is higher than the average purchase price nationally, the price correction being seen in many areas has encouraged more new buyers to invest, says Sandra Gordon, Pam Golding Properties senior researcher.
There has also been “considerable interest” in the province from South Africans living abroad who feel it is a good time to invest in property at home. Lindsay Beck, Pam Golding Properties branch manager for the southern suburbs, says homes that are correctly priced are selling well.
“Buyers are particularly interested in homes within the right price range.” Similar trends can be seen in the Atlantic seaboard and southern peninsula.