Recent industry statistics reveal that the demand for sectional title property saw steady growth in 2015, with total development plans for sectional title units increasing from 10.9% of total plans passed in early 2000 to 38% in early 2015. David Rebe, CEO of Sandak-Lewin Property Trust, says that although there are a few economic hindrances which may prevent extensive growth in the local market in 2016, such as interest rate hikes, inflation and the weakening rand, he foresees that the demand for sectional title properties will continue over the next 12 months, especially in the higher-end of the market.
“Over the past few years, residential property transactions in the Western Cape have exceeded those in other provinces across the country,” he says. He points to a recent report by Savills titled World Residential Markets, which revealed that the Western Cape property market grew by 7.3% in the first six months of 2015. Rebe attributes this growth to the many benefits that Cape Town offers, including its beaches, ocean views and buzzing Waterfront.
“However, despite the growth witnessed in the Western Cape property market, there are still obstacles which may result in a decline in the market,” Rebe says, explaining that while the weak rand may negatively impact confidence levels among South Africans, it essentially benefits offshore property investors who consider South Africa to be an appealing investment. “It is more cost effective for foreigners to invest in a holiday home in Clifton for R6m, which is only around 275,000 pounds, compared to paying the same price for an apartment in the United Kingdom that is smaller and has no sea view.”
He says that although the weak rand will probably keep the foreign property purchases ticking over, it is also important to look at the other risks affecting the property market. “As South Africa has entered into a rising interest rate cycle, there is likely to be another interest rate hike in 2016,” says Rebe. “The 0.25% rate increase won’t affect high-end buyers as much as the lower end of the market which doesn’t have much room in its budget for increasing bond payments.”
He adds that demand for properties across the popular Atlantic Seaboard in locations like Camps Bay, Clifton and Bantry Bay will remain in demand among the high-end market, due to the luxury status of properties in these areas and their ability to retain value even through the downturn in the market.
“Demand is not the only variable pushing up the prices, inflation is also playing a large part,” he says. “The weakening rand has impacted building costs quite severely, pushing up the selling cost to the point where developers have to charge inflated prices. Developers won’t take on a project if they are not making at least 25% return. Therefore, as building costs increase, so will properties.”
The cream continues to be skimmed
Rebe adds that various high-end developments across Cape Town are selling out very fast, despite the current economic slowdown. He says developments in the V&A Waterfront area, for example, sold out within two weeks. “The industry has not seen that type of take-up on new developments since 2004/5 and because of the success, developers are launching other projects.”