Why Cape Town property sales are drying up
A year ago, there seemed to be no end to Cape Town’s ever-rising tide of house prices. Trophy properties in posh Atlantic seaboard suburbs and the V&A Waterfront were reaching dizzy heights of up to R200,000/m². A price tag of R100m or more was no longer unusual in the likes of Bantry Bay, Fresnaye, Camps Bay and Clifton. Upcountry buyers were flocking in droves to the Western Cape — at an average relocation rate of 10 families a day, according to Wesgro figures.
The search for a more relaxed lifestyle in scenic surrounds, backed by a general perception that the city is far better governed, under the DA, than other metros, fuelled a boom that made house prices in many sought-after areas of Cape Town double over the past five years. A strong increase in foreign tourist arrivals further supported housing demand in these areas — so much so that in 2016 a German couple was happy to fork out a staggering R290m for a Bantry Bay mansion. The sale set a new record for SA house prices.
That’s in stark contrast to the muted housing activity in the rest of the country, where price growth over the past few years has struggled to keep pace with inflation. In fact, the average Gauteng homeowner has had to be satisfied with a 22% increase over the five years ending December, less than half the Western Cape’s 50% growth over the same time, FNB figures show (see graph).
However, Cape Town’s housing party appears to have come to a halt now that the reality of the water crisis has set in and Day Zero looms ever closer. The City of Cape Town last week warned that if water consumption did not drop dramatically, municipal water supply to households would be turned off on April 12. Some commentators say Day Zero could arrive as early as
March 3, given the severity of the drought.
Splurging R30m on a swanky Camps Bay or Clifton abode no doubt loses some of its allure with the realisation that taking a hot shower and a refreshing dip in a sparkling clean swimming pool or running your washing machine and dishwasher may all soon become a thing of the past. There is also the possibility of raw sewage leaks if the water flow in the city’s sanitation system is sharply reduced, which could pose health risks. All things considered, wealthy would-be buyers, especially new entrants to the Cape Town housing market, are bound to put buying decisions on hold. Tourists, especially domestic ones, are also likely to go elsewhere for now.
Industry players say there was already a drop in upper-end holiday rentals over the festive season. Ruth Munitz, manager of SeeffShortstay, who had a number of big-ticket holiday homes on the Atlantic seaboard to let in the R50,000/day to R115,000/day range, said in December that rental bookings at the upper end were "very slow".
She blamed the city’s water restrictions, among other things.
Of course, it’s not only the crisis that has put a lid on Cape Town’s property boom. Affordability issues also play a role. FNB property strategist John Loos says semigration to the Western Cape is no doubt losing momentum on the back of the widening gap in house prices between Cape Town and other SA cities. "New entrants are simply being priced out of the market," says Loos.
Moreover, the image of the DA-run local and provincial government has been tarnished in recent weeks following the poor handling of the water crisis and internal wrangling among DA members.
Industry players confirm that sales have already slowed markedly in upper-end suburbs, particularly on the Atlantic seaboard, the premier playground for the uber rich and arguably the city’s most popular second-home destination. Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, says sales volumes across Cape Town’s top-end suburbs are down around 30% year on year.
As a result, prices have already dropped in some suburbs. Geffen refers to Lightstone Property’s latest figures, which show that in Fresnaye average house prices are down 1.76% in the three months ending November — from a 12-month average of R15.21m to R14.94m. Bantry Bay took a bigger knock, with the average sales price of R12.95m in the three months ending November being 15.9% lower than the annual average of R15.47m. In Sea Point and neighbouring Greenpoint, average prices dipped by 7.89% and 3.26% respectively over the same period — from R7.29m to R6.72m and from R7.29m to R7.05m. Geffen argues that it’s not the water crisis alone that is to blame for a turn in market sentiment but rather SA’s overall recessionary climate and low investor confidence.
The time it takes to sell a house has also increased noticeably in some Atlantic seaboard areas. For instance, Seeff reports that it now takes around six months on average to find a buyer for a house in Camps Bay, up from around four months a year ago.
"Some properties are selling for as much as 20% below asking price," says Seeff Atlantic seaboard agent Pola Jocum. She says sellers will have to become more realistic in their asking prices and stop using overpriced listings to guide their price expectations.
The water crisis is particularly bad news for Cape Town’s new-build property market. Ross Levin, Seeff Atlantic seaboard & City Bowl developments director, says developers are now reluctant to start construction of new residential projects, as a disruption of water supply would result in building delays, which could lead to a huge increase in holding costs.
Cape Town developers may also be prompted to reconsider their building plans for projects that include swimming pools, as these will have to stand empty for the foreseeable future. Priya Reddy, head of the City of Cape Town’s communications department, confirmed last week that no swimming pool in Cape Town is allowed to be refilled. "We are in discussions with various industry players and while we can’t tell developers not to build pools, the only way they will be able to fill them from now on is through rainwater harvesting."
Reddy says even if the "heavens open" very soon it will probably take a number of years before Cape Town’s water restrictions are lifted: "This is going to be the new normal."
The only area in Cape Town where the taps are likely to remain on once Day Zero arrives is Cape Town’s inner city. Reddy says water supply to the CBD won’t be interrupted as it’s a key priority to keep economic activity intact in what is Cape Town’s main business hub. This is likely to provide a substantial boost to inner-city apartment sales, though local government still needs to map out the exact area where the taps will be kept open.
Basil Moraitis, Pam Golding Properties area manager for the Atlantic seaboard, says the company is already seeing more interest in CBD apartments. There is a rising trend of owners of larger stand-alone homes with pools and gardens opting for sectional title living, given the lower water consumption and maintenance requirements.
While some estate agents believe the drought-induced dip in Cape Town’s status as SA’s prime property and tourist destination may be shortlived, the Mother City may well face a prolonged period of stagnation.
Richard Day, Pam Golding Properties Cape regional head, says: "It’s too soon to say whether the water crisis will materially affect the desirability of Cape Town as a tourist destination or buyers’ decisions to relocate to the Mother City. It will depend on its effect on the local economy and social structures, and also the severity and duration of the crisis."
Meanwhile, it’s not entirely inconceivable that housing markets in Gauteng and KwaZulu Natal could stage something
of a comeback over the next 12 months if recent semigrants decide to return to their former home grounds. Capetonians themselves may even start looking
for "greener" pastures if authorites can’t stave off Day Zero.