Luxury apartment prices contract in Cape Town and Sandton Central, but up in Umhlanga

By Suren Naidoo

Prime apartment prices in Cape Town’s iconic Atlantic Seaboard and SA’s financial hub of Sandton Central in Johannesburg have dropped in the first quarter of 2018, while prices in Umhlanga’s Lagoon Drive, Durban, have increased.

This is according to research, published yesterday, by Johannesburg-based New World Wealth, the global market research group that brings out the influential South Africa Wealth Report and the Global Wealth Migration Review, amongst other studies. Dubbed as the “Residential Update for South Africa”, the New World Wealth research focuses on the growing luxury apartment segment of the residential property market in the country.

According to the study, prime apartment prices in Cape Town’s Atlantic Seaboard have contracted from around R75,000 per square meter in December 2017 to around R72,000 per square meter in March 2018. The Atlantic Seaboard is home to South Africa’s priciest residential properties and claims the top 10 spots in terms of “the most expensive streets in South Africa” list in New World Wealth’s latest research report. Despite the contraction, Cape Town’s Atlantic Seaboard apartment prices are still around double the cost per square metre, when compared to SA’s other prime property nodes of Johannesburg’s Sandton Central and Umhlanga in the Durban metro.

In contrast to Cape Town, the report by New World Wealth said that prime apartment prices in Umhlanga (Lagoon Drive) have risen from around R36,000 per square meter in December 2017 to around R37,000 by March 2018. The impact of the drought in Cape Town was raised by the research group as a likely reason behind the decline in the Cape, but increase in Umhlanga apartment prices.

Andrew Amoils, New World Wealth’s head of research, said: “This is possibly due to the fact that many foreigners and locals are now going on holiday to KwaZulu-Natal instead of the Western Cape, due to the Cape Town drought impact. There is also an uptick in prices in surrounding areas such as La Lucia, Ballito, Zimbali and Zinkwazi.”

Commenting specifically on the contraction of prime apartment prices in Cape Town, Amoils added: “This is probably due to the drought which has harmed the residential market there. Cape Town also had a poor December/January holiday season with many travelers staying away from the city due to the drought. This would have negatively impacted on the number of potential buyers.

New World Wealth’s latest residential research and commentary, particularly on the performance of the Umhlanga and Cape Atlantic Seaboard markets, is in line with recent market comments made by real estate heavyweights, Pam Golding Property Group. In April, Pam Golding Group reported that its North Durban office had seen record January and February sales, outperforming the company’s Atlantic Seaboard office for the first in its history.

Pam Golding confirmed to SA Property Insider that it had achieved sales for January and February at its North Durban office amounting to almost a quarter of a billion rand for the two months. It said this was a clear sign of the uptick in demand in burgeoning Umhlanga and the greater KZN North Coast.

Carol Reynolds, Pam Golding Properties’ area principal for Durban Coastal, said the region has taken centre stage as a more appealing and affordable alternative to alluring Cape Town, which was grappling with the drought. She added: “The KZN North Coast is benefiting from a bouquet of factors that have come together in perfect synchronicity, to herald it as the country’s number one growth node.”

Pam Golding Properties’ area principal for Durban Coastal, Carol Reynolds

Reynolds explained: “It is interesting to note that the property price inflation that Cape Town has experienced over the past four years has to a large extent been driven by Johannesburg semigration, rather than by international investors. Given that our local investors have the capacity to drive demand to such an extent, we anticipate a similar influx of families to the North Durban coastline in the coming years. Most notably, Johannesburg commuters are seeking the lifestyle offering in KZN, which, in my opinion, simply cannot be beaten,” said Reynolds.

Umhlanga and the KZN North Coast is seeing unprecedented development, driven in no small part by JSE-listed Tongaat Hulett, which is driving the commercialisation of prime coastal land that is currently under sugarcane farming.

Meanwhile, New World Wealth’s latest residential research report said that prime apartment prices in Sandton Central were also down, from around R34,000 per square meter in December 2017 to around R33,000 per square meter in March 2018.

Aerial view of Sandton Central.

Amoils said: “It is difficult to tell if the land redistribution issue is negatively impacting on residential prices in Johannesburg and Cape Town. In our view, it is certainly a possibility.”

In terms of its residential research report, New World Wealth said it was important to note that its indices work off a different basis from most other South African residential indices. The group said its indices track the average square meter prices achieved in selected prime 200 to 400 square metre apartment complexes in each area. “We believe is the best way to check for price movements. We focus on the most exclusive apartment complexes in each area (i.e. Prime),” it added.

The four main ways used to check price growth in an area include:

• Transaction indices – these are normally compiled by major banks. They are based on the total/average value of purchases that go through the bank during a period. (New World Wealth said in its view these were the least accurate, as they are often restated heavily over time)

• Average sales price indices – also normally compiled by major banks. New World Wealth said these indices could be distorted by big sales (i.e. the sale of a mansion) during a particular month/quarter.

• Repeat sales indices – New World Wealth said this index is very accurate, but difficult to compile over a short period of time or in a small area as it requires multiples sales on the same property.

• Square meter price growth – New World Wealth said by focusing on sales in certain apartment complexes one can get an idea on how square meter prices are changing. It added that this method does not require a large sample. Normally for an area such as Bantry Bay, tracking 3 to 4 prime apartment blocks can give one a very good indication of price movements, explained New World Wealth. It said the only limitation of these indices is that they only work well on apartments as houses normally have gardens and additional land, which is difficult to value on a square meter basis.