Consistency was the watchword for the Winelands property market in 2016, with a respectable average nominal year-on-year growth in property values of between 7% and 10% across all residential sectors in a region that includes the historic towns of Stellenbosch, Paarl and Wellington – the heart of South Africa’s fruit industry.
This is according to Chris Cilliers, CEO and Principal for Lew Geffen Sotheby’s International Realty in the Winelands, who says: “We didn’t notice a decline in the region’s market last year, largely due to the fact that it’s still primarily driven by an imbalance between supply and demand with stock shortages in most areas continuing to push house price inflation”.
“Demand has remained especially high in the estate market with the majority of buyers being security-conscious Gauteng investors who want to settle into a quieter lifestyle without sacrificing their children’s access to top-class schools. New properties are most appealing as there are no transfer fees and investors can achieve maximum returns by reducing their acquisition costs.”
The unflagging appetite for secure lifestyle property in the Winelands was clearly evidenced last year by the formation of the Western Cape’s first super-estate with the merging of Pearl Valley and Val de Vie near Paarl, creating a single luxurious, self-sustaining community adjacent to one of South Africa’s most beautiful towns. The new super estate also caught the eye of billionaire Patrice Motsepe, whose African Rainbow Capital made its first investment in the country’s residential property market with a 20% stake in Val de Vie Investments.
Says Cilliers: “Investment buying among individuals is also becoming more prevalent and a significant percentage of these buyers are purchasing homes in which they plan to live at a later stage, so they rent out the properties until they are ready to move.”
She adds that investment purchases are being spurred by a trend that is seeing greater numbers of people planning for retirement at an earlier age.
“Many people now recognize the long-term value and benefits of investing in their retirement homes long before they need them. Not only are they ensuring that their golden years are comfortable, but they are doing so at today’s prices.”
Demand for secure lifestyle retirement accommodation in the Cape Winelands is at an all-time high, with agents reporting a dearth of available stock and long waiting lists at most newer developments.
“More and more people want to retire away from the city,” says Cilliers, “and the Winelands is especially appealing as it offers a slow-paced country lifestyle in beautiful surrounds, yet is less than an hour’s drive from Cape Town and a short hop to pristine beaches and popular attractions.”
As is the case in many parts of the Western Cape, the strong market and escalating entry-level prices are placing property in the scenic region even further out of reach of first time buyers, especially those who require 100% bonds.
“There is definitely demand at entry level in the Winelands, but banks are becoming more cautious about lending and in our experience the greatest number of successful mortgage applications fall into the region of 70% to 80% of the purchase price”.
“Bonds of 100% are more the exception than the rule, requiring strong motivation to succeed. And if they do, borrowers are likely to be penalized with higher interest rates. It’s far more sensible to save for a deposit before looking to purchase to avoid the disappointment of not getting finance for that dream first home.”
Cilliers says entry level demand in Somerset West, Stellenbosch and Paarl notwithstanding, the bulk of Lew Geffen Sotheby’s International Realty clients in the area are cash buyers, or people requiring mortgages of less than 60% of their properties’ purchase prices.
Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, says although property prices are now mostly inaccessible to younger, cash-strapped buyers across much of the region, there is still excellent value to be found in one area nearby.
“Strand is one of the few places where it’s still possible to buy a three bedroom freestanding family home from around R1.8 million, a modern townhouse for under R1m or an apartment for around R600 000, enabling young families and aspiring professionals to get a foot in the market without sacrificing lifestyle”.
“In contrast, the price of sectional title properties, which are the norm for entry level buyers, has shot up dramatically just a few kilometres up the road in neighbouring Somerset West. In 2015, according to Propstats, the average price of sectional title units in the town was just under R835 000. Last year the average price had risen to R1.03m.”
However, Geffen cautions that the window of opportunity in Strand is closing quickly as growing demand drives up prices.
“Analysis of Propstats data reveals that property values have increased substantially over the past two years”.
“Between 2014 and 2015 the average sale price of apartments in Strand rose by 8.9% from R570 000 to R621 000, jumping by more than 50% to R935 000 by the end of September last year”.
“Houses fared equally well, with the average sale price of R842 000 in 2014 increasing by almost 25% to R1.05m in 2015, followed by an increase of just under 24% to raise the average house price to R1.3m at the end of the third quarter of 2016.”
Looking ahead to this year, Cilliers believes that stock shortages will continue to drive the Winelands market, especially if the demand from Gauteng buyers remains consistent.
However, she does add a word of caution: “If the Gauteng market flattens more, some sellers may be forced to accept lower prices while others will struggle to sell their homes at all and we would then expect our market to cool somewhat. If that is the case local sellers will have to adapt their expectations in terms of achievable sale prices.”