At Cape Town's high end, mild declines after a wild ride
Category Property News
CAPE TOWN - Reality and the global downturn have flattened the hopes of many South Africans who thought the real estate market would boom as the country welcomed the World Cup. And perhaps none had greater expectations of impulsive international buyers than owners in Cape Town, a city of about 3.5 million renowned for its sea and mountain views. (Cape Town is one of several host cities for the World Cup. Several matches will be played here, including a semifinal game on July 6.) By FIONA MACKAY / Published: June 10, 2010 / www.nytimes.com "In the old days we had people visiting Cape Town and the exchange rate was very favorable and they would pop into our offices and out of their holiday money, virtually, buy spontaneously because they were so taken by the lifestyle here," said Laurie Wener, managing director of the Western Cape region at Pam Golding, South Africa's biggest real estate agency. Now, she said, "foreign buyers have dwindled to the point where they are almost nonexistent," largely because of the continuing financial difficulties in countries like Britain and Germany, which once provided the largest number of Cape Town's international buyers. The market has not been helped by the fact that luxury prices in Cape Town's prime areas have risen a staggering 430 percent over the past decade, according to a recent First National Bank survey. And as property prices have risen, so has the cost of services, Ms. Wener said. "Foreign visitors are beginning to feel that they are being ripped off, especially during the high season. And don't forget it is expensive to fly here from Europe." The 2007 national credit act, which restricted loans on residential properties, insulated South Africans from the global subprime crisis. But it also prompted banks to adopt no-risk lending based on disposable income, which led to poor sales, oversupply and price deflation. For those with cash to hand, "really and truly, it is the time to buy now," said Ms. Wener, especially as "the rental market is excellent and has been growing for two years." But too many financial commitments, even if you are a high earner, and you are unlikely to qualify for a loan, she said. In recent years, "prices have not plummeted like in other centers of the world, but there was somewhere between a 10 to 20 percent drop, depending on the area," she explained. "At the top end, prices dropped less obviously, because most of those sellers can afford to wait for a better offer." It is the prime, low-risk areas - the southern suburbs like Constantia and Bishopscourt and the Atlantic Seaboard area - that have sustained agencies like Pam Golding through the difficulties of the last two years. For example, almost 50 percent of Pam Golding's revenue from January through March came from the sale of houses priced at more than 5 million rand, or $690,000 - even though they represented only 11 percent of all units that it sold during the period. In contrast, the mortgage-dependent northern suburbs (areas like Parow and Durbanville) and the West Coast (from Milnerton to Langebaan) had much more lackluster sales. DG Properties, based in Cape Town and specializing in homes along the Atlantic Seaboard, a picturesque sweep of coastline where the Twelve Apostle mountain range slopes down to meet the ocean on the western side of the Cape peninsula. Cape Town's priciest real estate is here, in areas like Clifton, Bantry Bay and Fresnaye, where properties sell for as much as 100,000 rand a square meter. Fresnaye to Clifton is only a stretch of a few kilometers, situated less than 20 minutes from Cape Town's central business district, where houses are built into the mountainside looking over the Atlantic Ocean. Prices in the area leveled out in 2009, but they are beginning to rise again because "there is no more land left to develop on,". In these areas it is not uncommon for properties to sell for 40 million rand, and there is even one on the market now for 100 million. "Cape Town, specifically the Atlantic Seaboard, has broken away from the general market trend in South Africa," says DG. "It is a cosmopolitan destination and a first-world city in many respects, and so the prices in these areas have pegged themselves to a more international level." As for sellers, they have become more motivated and are considering offers they might have rejected two years ago, said Basil Moraitis, Pam Golding's top agent in the area. Stefan Antoni, one of South Africa's leading contemporary architects, recently bought a property in exclusive Bantry Bay for 35 percent less than the asking price - not something that would have happened before the downturn. "Two years ago, if you showed interest in a property on the market for 20 million rand, the next week it would be 25 million. The following week you might call and it would be 28 million. It was ludicrous," Mr. Antoni said. "The property I am thinking of sold for 30 million rand, in the end." His prediction is that, after the World Cup ends July 11, there will be another surge: "But the boom will not come during the World Cup as some people hoped but during the two summers following." Mr. Antoni bought his property for its location, intending to demolish the house standing on it now and rebuild. The plan is not uncommon along the Atlantic Seaboard, where, as DG noted, undeveloped land is very scarce. Building along the Atlantic Seaboard is not cheap, with costs starting at 30,000 rand per square meter in the most exclusive areas. While imported luxury materials continue to be popular, Mr. Antoni notes that there is also a move toward locally sourced building materials and raw finishes. The newly redeveloped area known as the Cape Quarter, in Green Point, is a condensed example of this raw/sophisticated aesthetic. Here unpolished woods, rough granites and nods to the architectural style of the immediate neighborhood known as the Bo Kaap (formerly known as the Malay Quarter) can be seen in both the commercial and residential structures. The Cape Quarter is a trendy area, popular with international visitors for its villagelike charm, restaurants and close proximity to both the beaches and city center. Here, it is still possible to buy a two-bedroom apartment of 70 square meters, or 750 square feet, in a new development with underground parking, a balcony with mountain views and full security for 2 million rand. That is where Mikael Celvin and Lennart Bisson Uller, both from Stockholm, bought in 2003, "just when the property market started taking off," Mr. Celvin said. The couple spends six months of the year in their penthouse on Beach Road in Sea Point, a stretch of coastal road that runs from the Waterfront to Bantry Bay, leaving in April to return home for the European summer. In total they have bought eight apartments in Cape Town, most of which they have been renting out. Now, however, they are in the process of selling the units, "not because the market is bad, but because we want to reinvest elsewhere," Mr. Celvin said. As foreigners, buying in Cape Town has been "very easy," he added. "This is a law-abiding country - the process is transparent and there are systems for everything." Mr. Celvin said that, if the couple was going to continue to invest in Cape Town property, they would look at areas like Maitland and Pinelands, where the emerging middle class of black and mixed-race residents is buying. "Cape Town has the most fascinating market when it comes to pricing because you can still buy a property for less than 6,000 rand a square meter, while in the same town not 10 kilometers away are properties for 100,000 rand a square meter," he said. "If you want to make a profit in the future, I believe you need to be on the cheaper side, where the volume of demand is enormous." By FIONA MACKAY / Published: June 10, 2010 / www.nytimes.com
Author: New York Times