CAPE TOWN, 19 September 2005 — South Africa is experiencing a property boom the likes of which the country has never seen before. And the beautiful city of Cape Town, on the tip of the African continent, is the beneficiary of a huge section of this bull market. House price growth in the first six months of 2005 was a phenomenal 27 percent, and according to estate agents in Cape Town, the growth in certain exclusive areas in the Western Cape has been even higher, reaching 40 percent in some cases.
With a stable economy, controlled inflation and historically low interest rates and ongoing investor confidence in the property market and in South Africa in general, analysts predict a sound growth in property sales in 2005. Others predict that market demand would be further fueled by the 2010 football World Cup, which will be held in South Africa. Already the Cape Provincial government is developing the Vangate Corridor linking Cape Town city center with the international airport. The multi-million rand development is scheduled to be completed in time for the 2010 World Cup and is aimed at eradicating the shanty towns that have sprung up to be replaced by low-cost housing projects and industrial-cum-business parks.
Construction activity in the Victoria & Albert (V&A) Waterfront vicinity is booming, with developers targeting wealthy South Africans and foreigners with exclusive townhouse and penthouse developments. Adjacent to the Waterfront, the seafront Green Point and Mouille Point districts joining Da Waterkant area, are experiencing a residential boom, of which the latest is a 103 million rand development financed by Investec and aimed at the upper end of the market.
There are plans to develop another multi-billion rand Waterfornt-type development, this time in the Parrdevlei area near Bloubergstrand and Milnerton. The V&A is perhaps the most stunning waterfornt development in the world complete with five star deluxe hotels such as the Bay Hotel (voted one of the best hotels in the years in 2004); marina, shopping malls, restaurants, aquarium, and even university.
Cape Town’s central business district, which has already seen the growth of 1,100 new hotel rooms in the past five years, will see the construction of nine new five star hotels over the next two years.
Malaysian and Gulf investors are also starting to enter the market, but they are still at the bottom of the learning curve relating to South African credit and country risk. English and German investors were active in the South African property market throughout the heady days of Apartheid. Saudi investors have bought farming real estate assets including apple and citrus farms.
But lest one gets too carried away by this beautiful city, some pundits predict a market correction which would equalize this artificial boom market. Interest rates, which are currently low, is another factor for this bull market. But these are predicted to rise over the next year. The heavy rise in petrol last week, for instance, when the price of a liter of unleaded petrol touched a historical high of R5.78, is threatening to change property buying trends in the country.
“Buyers are now more concerned about finding a home closer to work and schools than they used to be,” said one property agent.
South Africa’s largest bank, Absa, has forecast a nominal house price growth of at least 20 percent for 2005, but falling dramatically to single-digit growth for 2006. “Nominal house price growth of at least 20 percent seems likely for 2005 as a whole, taking into account growth in prices of about 27 percent in the first six months of the year,” the bank said in a statement.
Other analysts stress that the market has entered an extended phase of stability. First National Bank (FNB) Residential Property Barometer for second quarter 2005 shows that although overall market activity has decreased, activity in the middle-lower end of the market is not decreasing at the same rate as the upper-end. However with the summer season now fast approaching the market is expected to pick up again. Another bank, Standard Bank is even more bullish, stressing that South African residential property prices should grow at between 18 percent and 25 percent in 2005 after an increase of 28 percent last year.
