Cape Town’s housing market finally seems to be emerging from its three-year slump. Until early 2018, the city was widely regarded as SA’s top property investment destination. Between 2012 and 2017, Cape Town house prices virtually doubled and regularly topped UK-based Knight Frank’s global house price charts, placing the city as the best-performing in the world.
But the upward march in sales volumes and prices came to an abrupt end in 2017/2018, when Cape Town was hit by drought. The city’s prospects as a semigration hotspot among upcountry buyers further faded on the back of rising political infighting in the DA-led local government.
Then, last March, Covid came. Demand from international buyers dried up, placing renewed pressure on the residential market. The simultaneous collapse of the tourist industry in Cape Town, arguably SA’s hospitality epicentre, meant that the long-term rental market was awash with empty Airbnb apartments and other short-term lets. That placed huge pressure on rental growth, which has eroded returns for many buy-to-let investors.
However, the latest industry data points to a marked recovery in housing activity in recent months. Carl Coetzee, CEO of mortgage originator BetterBond, says that while the number of housing transactions registered in the deeds office increased across all provinces in the six months to August year on year, the Western Cape (where the bulk of sales typically occur in and around Cape Town) showed the highest uptick at 139%.
The only other two regions across SA where registrations more than doubled over the same time are greater Pretoria (up 127%) and KwaZulu-Natal (KZN), up 113%. More telling, perhaps, is that Western Cape registrations for the six months to August this year were 27% ahead of those recorded for the same pre-Covid period in 2019. That follows a 47% drop last year.
Coetzee cites a resumption of semigration to the Cape — partly on the back of the recent civil unrest in KZN and parts of Gauteng — as a key reason for the province’s housing rebound.
The sharp rise in sales volumes has already translated into a rebound in values too. House prices in Cape Town grew 4.3% in October alone from a multiyear low of 2.8% for the whole of 2020, according to property firm Lightstone. Estate agents report a particularly noticeable resurgence in big-ticket sales, typically priced above R10m. Seeff, for instance, has recorded the highest number of sectional-title sales at the luxurious V&A Waterfront Marina complex since the market peaked in 2018. A cool R45m was achieved for a penthouse sold to a foreign buyer — the highest price fetched at the Marina since 2014.
As Ross Levin, licensee for Seeff Atlantic seaboard, Waterfront and City Bowl, points out: "It was only a matter of time before buyers would head back to what can be regarded as the premier real estate belt on the African continent." Levin believes Cape Town’s value proposition has been a major driver of renewed buyer interest, given that house prices in many of the city’s affluent suburbs are now roughly on the same level as they were three years ago.
Andrew Golding, CEO of the Pam Golding Property group, says demand is equally brisk in Cape Town’s southern suburbs, especially Constantia, where key attractions include green belts, wine farms and close proximity to top schools. "We’ve also seen a notable increase in demand for properties listed above R10m on the Atlantic seaboard, particularly in Camps Bay and Clifton, where we recently achieved a R70m sale," he says.
Golding says other recent top-end deals include a Clifton apartment sold for R55m to a local buyer and a R24.5m sale at the V&A Marina to an international buyer, sight unseen. The group clinched three sales in gated golf enclave Atlantic Beach Estate, near Milnerton, for between R12.5m and R15m; three sales in Bloubergstrand for R15m apiece; and a beachfront property in Melkbosstrand for a record R15.5m.
It was only a matter of time before buyers would head back to what can be regarded as the premier real estate belt on the African continent
— Ross Levin
Cape Town’s inner city is also attracting renewed interest from property developers and investors looking to capitalise on an expected recovery in foreign tourists and an influx of digital nomads supported by the remote working trend. At least a dozen new residential and "aparthotels" (which offer longer stays in self-catering apartments as well as hotel accommodation) are under construction or were recently completed in the city centre, with a total value of close to R3bn, according to the "State of Cape Town Central City Report 2020".
The report, which is published annually by the Cape Town Central City Improvement District (CCID), dives deeply into the economy of the Mother City’s CBD.
CCID chair Rob Kane says there’s no doubt that investor confidence in central Cape Town is on the mend after the pandemic’s crushing impact on the city’s economy last year. Notable new residential projects include 16 on Bree, The Rockefeller at Harbour Place, BlackBrick Cape Town and The Duke on the foreshore. In addition, Cape Town’s iconic Townhouse Hotel has been repurposed as Neighbourgood East City, a community-centric development offering fully furnished rental units for the short-, medium-and long-term letting markets. The developer of this property is also converting an old Adderley Street building into Neighbourgood Reserve, which will offer rental loft apartments targeted at the international remote working market.
Recently completed hotels, including aparthotels, include WINK Foreshore, Urban Oasis in East City, Hotel Sky and the Old Bank Hotel.
Kane says a key trend that emerged in 2020 was the focus on community, spurred by the "new urbanism" approach, which is boosting demand for mixed-use precincts that allow for downtown co-living and co-working.
Property developers have already started to bring innovative products to the market to meet this demand, with a number of the city’s tired office buildings being reinvented to become vibrant live, work and play hubs. Recent projects include the conversion of the old Absa building in Riebeek Street into Foreshore Place. The R373m mixed-use development houses 11 floors of residential units above 15 floors of commercial space, with retail outlets on the ground floor. Construction of the R150m mixed-use heritage development The Barracks also began in 2020 following a decade of planning, submission of proposals and requests for permission.
Investors have an opportunity to slenter Cape Town’s housing market at what may turn out to be a temporary discount
— What it means:
Kane refers to the microliving trend, which also continues to gain traction in central Cape Town and is aimed at young professionals looking for an affordable urban lifestyle. Prices typically start at below R1m. The idea is to limit private living spaces to small bachelor-type units of between 20m² and 40m², but to maximise communal and leisure areas in the same complex.
Cape Town developers are also embracing the "club" concept, which gives buyers, or club members, access to fully furnished co-living suites with fixed monthly costs and flexible lease terms as well as to shared work and kitchen spaces across various buildings within a developer’s portfolio. For instance, club members of BlackBrick Cape Town have access to the living and working spaces at BlackBrick Sandton, among other places.
Some may argue that the surge in new residential development will create an oversupply that could put pressure on prices, especially as the number of sectional-title units in central Cape Town has already more than doubled over the past five years to close on 5,000. According to the CCID’s report, the median sales price for sectional-title units in the city centre dropped 8.3% last year to R1.65m. That’s a sizeable 21.4% less than the R2.1m achieved in 2018 (see table). The number of sales was down a hefty 25% in 2020, from 174 to 130, which is less than a third of the 373 achieved in 2018.
However, the upside is that investors now have an opportunity to enter Cape Town’s CBD housing market at what may well turn out to be a temporary discount. In fact, buyers are now paying nearly 25% less per square metre for an inner-city apartment than they did at the peak of the market in 2017 — an average R31,000/m² versus R41,287/m².
Kane says the work-from-home trend will further boost demand for inner-city living when people have to return to the office and "no longer want to tolerate a long commute".
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