Property Investment Cape Town

Property developers eye Cape Town’s potential

The Cape Town property industry is booming with developments and private developers are eyeing plenty of opportunities, despite the economic climate.

From schools and student accommodation to brownfield redevelopments and gated residential estates, developers are seeing enormous potential in the local market.

“The property industry is so diversified and full of opportunities,” says John Chapman, a director of the Rabie Property Group.

“All developers see different opportunities in different markets and most tend to focus on opportunities in their niche markets.”

Although Rabie’s focus is generally on mixed-use development, like its flagship Century City Project, Chapman says a number of factors are currently influencing the market. These include affordability, security, semigration, schooling and retirement.

“Affordability at the various levels is a big issue. South Africa is in recession and jobs are not being created. Things are worse now than they were a year ago and will get worse before they get better.”

There is dire need for affordable housing, says Jacques van Emdben, managing director of Blok, thanks to the fact that the government is required to cater for the needs of people in the lower income brackets – less than R3 500 a month – while the private sector caters for the needs of those at the high end of the income bracket – more than R30 000 a month.

But no one caters for the in-betweeners, like the early career people or key and essential services workers.

“In Cape Town the limited supply of both land and houses, a relatively non-competitive housing market where sellers dictate the cost of land, and relatively uncompetitive building costs, have exerted significant upward pressure on rental, housing and land prices.

“Currently, the average price of a flat in the 57 residential complexes in the CBD – including those currently under construction – is R2.337 million, which requires a household income of R70 000 upwards a month for a one-bedroom apartment and R140 000 upwards for a two-bedroom home.”

But middle-income earners can afford a maximum home purchase price of only R1.5m.

Van Emdben says this means these householders are either forced to rent, or buy cheaper properties in the outer suburbs.

“There is a real and pressing need for urban housing for a more diverse set of income ranges in well-located areas of the city.”

Van Emdben says although Blok’s developments cater to the upper end of the urban market, it is looking at ways to use its development resources to cater to the middle income market via developments that speak to both markets on the same site.

Crime is also problematic and to counter this Chapman says there has been a big move towards gated communities and secure estates.

Semigration is a growing factor as many upcountry folk look to secure footholds in the Western Cape, which they perceive to be safer.

“Schooling is a big issue and this is why private schools are proliferating.”

Retirement is also a growing market, because it has been neglected in the past and because people are living longer. There are market opportunities for developers across all affordability levels in this sector, Chapman says.

With at least 50% of the global population living in urban areas, and analysts projecting a 1.5 times rise to six billion city- dwellers by 2045, Nicholas Stopforth, head of development at Amdec Property, says there is no denying that investing in sustainable modern and thoughtful urban lifestyle residential developments is important.

“Designing the kind of urban spaces that will essentially improve the quality of life for South Africans is crucial, and because of increased urbanisation, developers will continue to have to look at mixed-use developments, where people can live, work, go to restaurants etc in safe and sustainable community-focused environments.”

Echoing Chapman, he says significant opportunities for developers also arise in the retirement accommodation market.

But although development opportunities are plentiful, so too are the challenges facing many of the development markets in the country, Chapman says.

The “major challenge” of affordability is exacerbated by the fact that getting bonds is becoming increasingly difficult.

“This is not just limited to low-income earners. We are seeing it across the board. Even some of our investor clients with strong balance sheets are finding it harder to get bond finance and in some instances have been turned down.”

Agreeing with this, Van Emdben adds that with South Africa being downgraded to junk status, some of the main challenges are heavily linked to the banking division and the ability to work with middle income earners who have been most affected and are under increasing financial pressure.

“Affordability is a growing challenge for most developers due to the resilience and positive growth in the Cape Town housing market. The rigidity of the banks in financing, compounds this issue.”

The issue of affordability is also impacting on the size of houses and apartments that developers can viably bring to the market.

“There is no doubt that living spaces are going to get smaller as we go forward and become more in line with European trends,” Chapman says, adding that the challenge is to developers to design more efficiently.

Generally though, he says developers need to adapt to the times.

“With the electricity shortage we had to get innovative and find energy-saving solutions with solar and other alternative energy resources and devices. Some of these, such as heat pumps rather than individual geysers, are now prescribed by local authorities…

“Now with the water shortage we have to do things differently in terms of landscaping, accessing non-potable water, harnessing stormwater, using salt water to fill swimming pools and the like to make our developments succeed.”

In addition, Stopforth says availability of space in major hubs is “always a challenge”.

“However, a challenge is not necessarily a bad thing, because it gives our architects the chance to innovate when working with the space. It’s important for us to create the right balance of life, work and play in these new developments.”

Source -IOL: http://www.iolproperty.co.za/roller/news/entry/property_developers_eye_cape_town

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