Cape Town property rally continues

Cape Town has, it seems, regained its status as SA’s most expensive and best-performing housing market after a multiyear slump.

From 2012 to 2017, the city’s residential property sector experienced an unprecedented boom, with prices virtually doubling. That came on the back of a huge wave of semigration, as Gauteng and other inland buyers flocked south in search of more scenic and relaxed surrounds, and an influx of offshore buyers, many no doubt lured by the exposure from the 2010 Soccer World Cup.

At the time, the DA-led local government also appeared to be doing a better job in delivering municipal services to residents than its counterparts in other SA metros.

But then the drought hit in 2017/2018, crippling the city’s water supply, and local government was beset by political infighting, denting the city’s reputation as the best-managed in SA. House prices had also reached unaffordable territory.

Together, these factors put a brake on tourism, semigration and real estate investment flow in the metro.

Of course, the advent of the pandemic in early 2020 and related lockdowns and travel restrictions further strangled housing activity — purchases by foreigners dried up overnight. As a result, house prices in some parts of the city tumbled more than 25%.

Now, industry data points to a noticeable turnaround since last year, and a renewed acceleration in sales and prices in recent months. In fact, housing activity is finally back to a level last seen in the 2017 heyday.

Data from analytics firm Lightstone, which tracks all property transactions registered in the deeds office, shows the total value of Cape Town residential sales for the first half of 2022 came to R14.3bn.

That’s the first time in five years that residential sales for the January-June period have surpassed the 2017 peak.

The second quarter was particularly busy, with sales worth R8.2bn clocked up — the highest quarterly transaction value on record. That represents a 26% year-on-year increase and is comfortably ahead of the R6.9bn achieved in the second quarter of 2017.

In addition, the average house price for Cape Town as a whole recently surpassed R2m for the first time — up 11% y/y and a hefty 28% above 2019 lows (see graph).

It makes the city the most expensive by far in which to buy a house in SA. The average homebuyer in Cape Town now has to fork out about R600,000 (or 40%) more than they would for a property of similar size and quality in the rest of SA.

Estate agents confirm that Cape Town’s housing market has bounced back strongly on the back of a second wave of semigration, as well as a post-Covid return of foreign buyers.

Activity in top-end suburbs, where prices typically exceed R10m, are particularly buoyant. Referring to official data from sales database PropStats, Seeff Properties chair Samuel Seeff says more R20m-plus homes in the Atlantic seaboard and city bowl areas changed hands between January and August than in the whole of 2021 — 55 totalling R1.64bn, against 46 worth R1.62bn.

Given that sales activity tends to rise in summer, Seeff says it’s likely that the overall sale of trophy homes worth R20m or more this year could top the high achieved in 2017. At the time, PropStats recorded 64 sales worth R1.8bn (see table).

Seeff has already sold 11 Cape Town properties of more than R20m this year, four of which went to offshore buyers from the UK, US, Germany and Switzerland. The agency has also concluded two deals in the R50m-plus price bracket in the year to date: R72m for a luxury apartment in The Aurum in Bantry Bay, which sets a new record for sectional title prices in the city of a whopping R180,000 a square metre; and a penthouse jointly sold for R50m in the Pinmore building at the V&A Waterfront.

But Seeff says demand has recovered across all price brackets — “so much so that our agents are now seeing a shortage of properties to sell and rent out in many suburbs across the city”.

That’s underscored by a 26% y/y rise in sales recorded by the group in Cape Town for January to August — up 42% on 2019 levels.

Basil Moraitis, head of Pam Golding Properties (PGP) in the Western Cape, notes a similar trend. He says despite the traditionally slower winter market, coupled with rising interest rates, the group has recently achieved some of its best months ever in Cape Town.

That’s particularly true for the R10m-plus market, with high-end demand underpinned by buyers reconsidering their post-pandemic priorities. Moraitis notes that the well-heeled are now looking for larger lifestyle properties with easy access to the city’s beaches, restaurants, nightlife and other leisure amenities. “This has resulted in a reduction of properties for sale in this segment, which is actively driving pricing expectations and resulting in competitive offers,” he says.

In the wealthy enclave of Camps Bay, for example, Moraitis says the median selling price recently topped R15m, up from R12.2m last year and R10m in 2020.

“There are definitely more transactions being concluded and more buyers in the market, especially those from international destinations who are again interested in SA real estate,” he says. “German buyers are now more prevalent than at any time during the previous seven years.”

There are definitely more transactions being concluded and more buyers in the market, especially those from international destinations who are again interested in SA real estate
— Basil Moraitis

Moraitis singles out Clifton, Camps Bay, Bantry Bay, Mouille Point and the V&A Waterfront on the Atlantic seaboard, Constantia and Bishopscourt in the southern suburbs, and Simon’s Town on the south Peninsula, as Cape Town’s most in-demand suburbs.

In the once-sleepy suburb of Simon’s Town, PGP recently achieved a record sale of R19m, from the previous high of R14m, to a British buyer.

Cape Town’s central city area has seen an equally bullish rebound in residential property demand and prices. Last year 856 residential units changed hands at an average of R1.7m apiece in the CBD. That’s almost five times the 176 units sold in 2019, and nearly double the sales volumes achieved in 2016, according to the latest edition of the State of Cape Town Central City Report, published annually by the Cape Town Central City Improvement District (CCID).

Though last year’s average sales price is still below the R2.1m average recorded in the city centre in 2018, it represents a significant y/y increase of nearly 33%. CBD residential prices dropped 14.3% in 2019, and 28.9% in .

There was an equally pronounced recovery in city centre rentals last year, with larger units showing the biggest jump. Monthly rentals for two-bedroom units were up 15% y/y — from an average R15,547 to R17,768.

Owners of buy-to-let units with three or more bedrooms were able to push up monthly rentals by as much as 30% last year — from an average R31,133 to R40,314 a month.

Such was the recovery in demand for larger properties in the CBD last year that monthly rentals of up to R95,000 were achieved, according to the report.

Rob Kane, chair of the CCID and CEO of Cape Town-based Boxwood Property Fund, says there was a significant increase in available rental stock in 2020 on the back of repeated lockdowns and travel bans, which resulted in short-term lets being added to the long-term rental pool.

However, this trend was reversed in 2021 as the steady rollout of vaccinations and easing of lockdown measures led to a rise in domestic tourism, which prompted owners to return rental units to the short-stay market.

Kane notes that a large mix of new residential, office-to-flat conversion and aparthotel developments were completed last year, bringing more buyers to the CBD. These include 16 on Bree, Foreshore Place, The Rockefeller, BlackBrick Cape Town, The Capital 15 On Orange, and the Old Bank hotel.

Another two mixed-use developments — The Rubik and One Thibault — are under construction.

Kane refers to the conversion of office blocks into mixed-use developments — providing “flexible and thoughtfully designed” co-living and co-working options — as an important trend in the CBD.

He adds that the combined investment value of all residential and mixed-use developments completed in the CBD last year, or soon to be finished, represents a record capital injection of more than R3.5bn.