Advice and Opinion

Cape Town’s property growth filling a gap

Resurrection by development? The City's housing policies encourage the provision of adequate housing. Is this challenge being met? (Photograph: Gareth Griffiths).
Resurrection by development? The City's housing policies encourage the provision of adequate housing. Is this challenge being met? (Photograph: Gareth Griffiths).

Statistics point to extraordinary growth in property prices in select suburbs of Cape Town, with experienced property commentators adding their collective views on the topic.

At the same time, rental costs have also increased, reinforcing the general impression that the city is a desirable and safe investment hub where the right kind of property purchase or new development can deliver handsome returns, even in the short term.

According to Cllr Brett Herron, Mayoral Committee Member for Transport and Urban Development, City of Cape Town: “Cape Town is a city that works and this is partly why more and more South Africans opt to settle here. We are doing our best to make our city appealing to investors, businesses, and professionals in order to stimulate the economy and increase employment opportunities. The population of Cape Town increased by 56% between 1996 and 2016 and the number of households has almost doubled in this period”.

This immense boost to local property has also presented planners with a dilemma: on the one side, investors and the wealthier end of the market are doing fine, but gaps are opening in the supply of housing and rental stock in the middle to lower income bracket housing sectors.

“A free-market economy – supply and demand – determines prices of goods and services. The same principles apply to the property market. Areas close to key nodes of employment, and routes along new public transport, are increasingly in demand” says Herron.

He admits that it is the job of the City to mitigate against a trend where tenants and other residents who have lived their entire lives in suburbs are threatened with displacement by increasing property prices or displacement for other reasons. The slow roll out of a complex social housing regime is frustratingly slow, but hopefully the City’s plans will shortly break ground.

“The provision of affordable housing opportunities in and around the city centre, in Woodstock and Salt River will be a good start” he says.

Late in March this year, the City advised its plans to provincial and national government to declare the entire Cape Town a restructuring zone. “This should eliminate any restriction on the City’s intention to speed up the delivery of affordable housing opportunities”. Herron acknowledges that transport for working persons living in affordable housing opportunities is ‘non-negotiable’. “We aim to create a more integrated and inclusive city where residents
have equal access to opportunities”, he notes.

Caught in the middle

Nearly 40% of Cape Town’s population reside in the metro-south east integration zone (MSEIZ). This has one of the highest densities in the city – above 100 units/ha – and is home to the largest concentration of people considered in the most vulnerable group. It is also widely acknowledged that the provision of new housing opportunities for middle income earners is inadequate. While government interventions have been aimed at persons earning less than R 15 000 per month, in general, the income group between R 15 000 – R30 000 pm has come off second best. Into this gap, a number of projects have been launched, notably the MSEIZ in the Woodstock – Obervatory Main Road strip. Chairman of Rawson Developers, Bill Rawson and Managing Director, Carl Nortje are experienced in the provision of appropriate housing opportunities to help address these imbalances.

Rawson says that the company has refined the concept of the secure, compact lifestyle apartment in areas close to the CBD where, by all accounts, sales and rentals of new apartments have been brisk: “We encourage buyers to come on board at an early stage of the project. For example, at the Premier on the Main Road in Newlands, there have been returns of up to 25% p.a. on a 2 bedroom apartment since project launch to handover. It is a particular favourite for buyers who have family at UCT”.

Development in the urban development zone (UDZ) area of Observatory Main Road particularly excites Rawson. Here, potential exists for not only great ROI, but also sustainable income for the investor. “The UDZ is a system whereby tax relief is obtained on capital invested in income-earning property in a designated area. This means, as long as your dwelling is earning rent, you may claim a portion of your purchase price as a tax rebate annually over a set period, as long as you are earning income from 100% occupation”, he explains.

Advice to the market

Nortje suggests that buyers ask a number of key questions prior to investing in the current market in Cape Town: benchmark R/m2 prices on offer against those in the CBD – look for value, check for easy access to and exit from the CBD, such as MyCiTi; interrogate the growth potential of the investment where certain developments have delivered returns way above the average; look for ease of access to academic institutions for student accommodation; seek out and insist on quality – durable good looking finishes as standard options – and state of the art passive and active electronic security.

Rapid transport

According to Herron, an imminent roll-out of Phase 2A of the MyCiTi service to Wynberg and Claremont is central to the MSEIZ. “This will greatly enhance the potential of living in Observatory, enjoying its vibrant lifestyle and commuting to the CBD” says Rawson.

Herron says that the City would like to see that private sector implements its vision. This means that the public and private sector will have to adapt its approach to spatial planning and urban development. “A more compact city with higher densities and more efficient/mixed land use”, he notes.

Indeed, the Western Cape Provincial Government MEC for Economic Opportunities, Alan Winde, points out that development is key to growth in the Western Cape. “We are home to four universities and engage in a wide range of skills development programmes aimed at supplying the labour market with a relevant and competent labour force. We have the target of introducing 32 500 qualified artisans into the workplace by 2019” he says. With skills development and the provision of appropriate housing high on the list, it is not surprising to note that certain key suburbs to the south of Cape Town’s CBD have experienced an interesting evolution.

“With development activity which aims not only to provide cost effective housing opportunities to the middle class income group, but also lifestyle opportunities, it seems to be on the right track”, suggests Nortje.

By Gareth Griffiths.