Real Estate Investor Magazine South Africa Real Estate Investor Magazine - May 2017 | Page 18

According
to
Carola
Koblitz,
CCID
communications manager and the editor of the Cape
Town’s annual State of the Central City report,
residential property has continued to do extremely
well: “[T]he average unit price across the Central
City having increased from R2.031 million in 2015
to R2.337m in 2016, an increase of 15.06% year on
year,” she says. She does note a “healthy steadying of
the market”, however.
The above has not been not true of South Africa’s
overall property price growth rate. Based on the
December 2016 FNB House Price Index, the year-
on-year growth rate in the country reached a “lowly
1.3%” (down by 0.6% in December from its November
rate of 1.9%) which, according to the FNB Barometer,
represents the “8th consecutive month of slowing
year-on-year price growth, and is the slowest year-on-
year rate of increase since May 2011”.
Rental prices in the Western Cape also on
the rise
According to the PayProp Rental Index for the third
quarter of 2016, the average rent in the Western
Cape grew by 9.32% in Q3. At the time, the Index
maintained that the Western Cape was the strongest
performing rental market:
“It has the second-highest rents in the country,
growing at just under 10%. It also has the highest
percentage of rentals in the above-R15 000 category,
and landlords are able to extract deposits of 1.8 times
the rental value from tenants.”
First-time and repeat homebuyer trends
The FNB Repeat Home Buyer Study for 2017
highlighted an acceleration in net inflow of repeat
home buyers into the Western Cape in 2016.
According to the same study, Gauteng, on the other
hand “appears to be moving in the opposite direction”.
When it comes to first-time homebuyers in South
Africa, a 2017 Lightstone press release states that,
“a close investigation of first-time home buyer trends
over the past two years shows that the suburbs most
in demand for this market are in Gauteng and the
Western Cape, close to the respective economic hubs
of Tshwane, Johannesburg and Cape Town”.
Based on this report, the primary driving factors for
where new market entrants are deciding to buy appear
to include affordability and ease of access to work,
shops, schools and services.
Some of the downsides of semigration
Sue Alison, Area Specialist for Lew Geffen Sotheby’s
14
MAY 2017 SA Real Estate Investor
International Realty, describes buyers in Cape Town,
specifically, who are “weary of Cape Town’s increasing
traffic congestion, commuting times that grow ever
longer and the expense associated with hours spent
idling in bumper-to-bumper traffic every work day,”
and are, therefore, opting to move closer to the City
Bowl because of its convenient proximity to a range
of amenities.
Convenience of location and lifestyle does come
with a heftier price tag, however. “As the CBD
continues to develop and expand, coupled with the on-
going wave of semigration to Cape Town, residential
property in the City Bowl can only climb in value in
the medium to long term,” Alison forecasts.
While rising property prices signal good news for
existing landlords, they could pose a major obstacle
for first-time investors wanting to get a slice of the
lucrative property market pie. When compared to
Gauteng, there were fewer reported first-time buyers
in Cape Town than there were in Johannesburg and
Tshwane in 2016. Have affordability challenges
‘crowded out’ first-time buyers in Cape Town more so
than Gauteng? It would appear so.
And then there was junk status
While Cape Town has been largely exempt from the
slow property market growth trends in the country
up until this point, South Africa’s recent credit
downgrade to “junk status” by two of three rating
agencies might prove to be the great leveller.
Although the impact of this downgrade might
not be felt by the average South African in the short
term, the forecast still looks bleak: as interest rates
increase, foreign investors begin to disinvest, and
others demand higher interest for the risk of lending
us money, there will be less money for infrastructure
spend, and taxes will have to go up. As the rand
decreases in value, prices of imported goods, such as
fuel, will also increase. Salaries and wages will not
necessarily go up to counteract these increases.
According to Adrian Goslett, Regional Director
and CEO of RE/MAX of Southern Africa, unless
financial lenders have already priced in the effects that
a downgrade is likely to have on credit costs, credit
will be harder to obtain from financial institutions,
and credit that is granted will cost more. This will
directly impact on consumers’ willingness and ability
to buy property.
South African are already struggling to save and pay
off their primary residence mortage loans. According
to the South African Reserve Bank, the amount of
outstanding mortgages rose by 5.42% in August
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