PROPERTY HOT SPOTS
Category PROPERTY
Western Cape dominates as the best area to invest in property, hands down!
While many faced disappointment, seasoned investors remain strategic, focusing on understanding market dynamics, analyzing price trends and balancing supply and demand.
To guide investors, let's explore property hotspots, good capital gains, and lucrative rental returns.
Understanding Property Hotspots
Property hotspots are areas where prices surge beyond the national average due to specific micro circumstances. These opportunities yield above-average returns on investment (ROI) if purchased wisely. A good capital gain typically occurs over a longer period, averaging between 2% and 6% house price inflation since the 2008/9 market crash. For rental properties, an annualized ROI of 8-12% is considered good, with anything exceeding 15% being spectacular. However, high returns
require diligent management, marketing, and customer service.
Factors to Consider that Investors should evaluate:
- Expected cash flow from rental income (benefiting from inflation).
INVESTING
- High tenanted properties for steady cash flow.
- Expected intrinsic value increase due to long-term appreciation.
- Benefits of depreciation and available tax benefits.
- Cost-benefit analysis of renovations for improved resale value.
Property Types Offering High Returns and Profits
- AirBnb - flats, townhouses to houses with multiple rooms
- Student Accommodation - Residential Apartment complexes
- Industrial units
- Self-storage
Festive seasons promotes, short-term rentals like AirBnb, holiday houses, and student
accommodation that are gaining preference over traditional options, driven by increased tourism.
Western Cape
The Cape Town residential property continues to see continued growth as the city is seen as the better
place to live and do business. It is forcing a semigration trend where people are moving from other
provinces such as Gauteng and Kwa-Zulu Natal to the Western Cape.
There are clear reasons contributing to this growth?
- Municipalities and services are run extremely well
- The road and area infrastructure are well maintained.
- Employment rates are the highest in the country
- Tourism drives high rental demand
- The Residential property sector has consistently been the best performing market in SA for more than a decade with the highest house price growth.
Above average rentals with very low vacancies Ross Levin of Seeff Atlantic Seaboard says the Cape Town rental market is booming, both for longer term residential rentals and short stay accommodation. The return of tourism to pre-pandemic levels combined with the resurgence of events in the city such as the Formula E, Sevens rugby etc. all contribute to the high demand.
Lightstone's assessment of the proportion of sales between R100k and R20m in 2019 and 2023 shows that the Western Cape's share has jumped from 23% to 27%, while Gauteng has slipped from 43% to 39%. The opening up of international investment, semigration and higher employment has put the Western Cape firmly onto the investment map.
In the Western Cape, particularly Cape Town, the residential property market continues to thrive due towell-run municipalities, maintained infrastructure, high employment rates, and tourism demand. Notable municipalities include Overstrand, Stellenbosch, and Hessequa.
The most active municipalities in the Western Cape are Overstrand, Stellenbosch and Hessequa, followed by Knysna, Prince Albert, Saldanha Bay, Kannaland, Swellendam, Bergrivier and Cape Agulhas, with Cape Town seeing its share of activity rise from 15% to 17%.
"The most increased town activity (as opposed to municipality) has been around Stellenbosch, and then along the West Coast (Langebaan, Yzerfontein and St Helena Bay), inland around Darling, Riebeeck Kasteel and Barrydale, in Cape Town (Scarborough, Hout Bay, Noordhoek) and then heading east along the south coast, in towns such as Gansbaai, Stillbaai, Mossel Bay and Knysna," Lightstone.
There are also a few countryside towns within the Western Cape that provide a serene, nature-centric environment, attracting those who are seeking an escape from the hustle and bustle of the city. Entry-level homes in these types of towns are still affordable, often starting at R1.5 to R2 million.
"Buyers can enjoy spacious properties, beautiful landscapes, and a slower pace of life in areas such as Gansbaai, Pearly beach, Baardskeerdersbos, Villiersdorp, Franskraal, Genadendal, and Greyton. In fact, over the last three months, we've observed a notable increase in city residents looking to relocate to rural towns. This surge may be attributed to a growing preference for a serene and naturecentric lifestyle and remote working.
Other markets
The other South African provinces overall are going through a drop in investor confidence because of mismanaged municipalities meaning poor services, poor road infrastructure, no investment, energy issues, excessive loadshedding, water shortages, and other challenges which are unique to those areas.
INVESTING INVESTMENT HOT SPOTS
Gauteng's Sandton however is transitioning from a strong business district to a more luxury residential space, offering many redevelopment opportunities. Pretoria stands out as the world's most affordable capital city, attracting first-time buyers and families.
In KwaZulu-Natal, Ballito, and coastal towns experience growth, while the Eastern Cape sees a rise in smaller towns, attracting semigrants and first-time buyers. Mpumalanga emerges as a property investment hotspot with a 17.3% house price inflation, offering diverse options for first-time buyers, professionals, and retirees.
Bloemfontein in the Free State stands out as an affordable city, attracting young buyers and families. As interest rates stabilize, these hotspots offer promising investment opportunities for those who understand the nuances of each market.
Despite the allure of the Western Cape, other provinces grapple with the persistent challenge of inadequate municipal services. The key to retaining residents and attracting real estate investors lies in a combination of interest rate recovery, inflation reduction, and significant improvements in municipal services. Until these factors align, the Western Cape is poised to maintain its appeal,drawing in individuals and investors from across other provinces
Author: Neale Petersen
