The darling of South African property has had a tough couple of years. The Western Cape’s drought and a struggling national economy means that many Cape Town buyers might soon be shifting their focus to other cities. One worthy candidate could very well be Durban.
Recently named the most liveable city in South Africa according to Mercer’s 20th annual Quality of Living Ranking, placing at number 89 worldwide, Durban is ahead of Cape Town (at 94) and Johannesburg (95). In terms of the Middle East and African region, Durban places fourth, with Dubai and Abu Dhabi nabbing the first two spots (at 74 and 77 respectively), Port Louis in third place with a score of 83, and Cape Town at number five.
The report is considered an authoritative voice in the global community, providing feedback to multinational corporations on fair compensation for employees stationed in cities around the world.
To come up with an accurate score, the ranking evaluates local living standards according to 39 factors, grouped in 10 categories:
- Political and social environment (political stability, crime, law enforcement, etc.).
- Economic environment (currency exchange regulations, banking services).
- Socio-cultural environment (media availability and censorship, limitations on personal freedom).
- Medical and health considerations (medical supplies and services, infectious diseases, sewage, waste disposal, air pollution, etc.).
- Schools and education (standards and availability of international schools).
- Public services and transportation (electricity, water, public transportation, traffic congestion, etc.).
- Recreation (restaurants, theatres, cinemas, sports and leisure, etc.).
- Consumer goods (availability of food/daily consumption items, cars, etc.).
- Housing (rental housing, household appliances, furniture, maintenance services).
- Natural environment (climate, record of natural disasters).
While the list is dominated by European cities, it is interesting to note that developing economies are catching up, thanks to years of investment into infrastructure and housing.
Cape Town’s Day Zero may have been pushed out to 2019 for now, but the economy hasn’t come off unscathed. According to FNB’s figures, the Western Cape has seen exceptional house price growth over the past five years of 50.4% to the end of December 2017, with KwaZulu-Natal trailing behind at 31.9%. However, year-on-year growth in the last quarter of 2017 slowed to 4.4%, down from 4.8% in the previous quarter and now significantly slower than the 11.1% multi-year high of early 2016.
According to John Loos, property sector strategist at FNB, slowing growth in the province isn’t surprising. Julia Hinton from Property24 explains that the past 5 years of high growth has lead to affordability challenges, compounded by the drought’s impact on local economy.
The Second Mother City?
PayProp’s review of the rental market for 2017 shows KwaZulu-Natal’s y/y growth coming in at 5.3%, slightly below the national average of 5.4%. Rent-to-income ratio for tenants in the province is on-par with the national average of 27.9%, indicating a tenant pool likely to be able to afford their rent.
We all know that these figures only tell a part of the story, however. According to Andrew Schaefer, MD of Trafalgar, the city is also home to many who need to be close to work in the city centre, but cannot afford monthly rentals of between R4500 and R8500. This problem, of course, is seen across the country. “This has frequently given rise to uncontrolled sub-letting, overcrowding and all the accompanying social problems,” says Schaefer.
A growing trend in Durban is landlords converting their rental apartments to provide separate rooms-to let, sharing kitchens, bathrooms, and common rooms. “The property owners are able to prevent illegal occupation of their premises by unauthorised sub-tenants, while the tenants are protected against exploitation by slumlords,” he explains.
The model could very well be a blueprint for other CBDs, where affordability challenges has left many people hopeless and desperate. Not only does this provide housing, it also protects property owners: “This is a way for property owners in these areas to achieve a ‘meeting of minds’ with their prospective tenants and achieve much higher occupancy levels, while the tenants get the clean, safe and secure accommodation they want at an affordable price. Apartments and buildings are much less likely to get hijacked in such conditions and the city itself is likely to benefit from more regulated letting and lower defaults on utility payments,” explains Schaefer.
Commercial head for Tongaat Hulett Developments, Christ du Toit, explains that now is the time for investing in Durban: “With recent acquisitions by national players, we have seen the start of a new season that will continue.” The developers have typically focused on high-end residential, commercial, and industrial developments.
Taking a long-term approach, Du Toit explains that they are now focusing on mixed-use developments. Tongaat Hulett Developments MD, Michael Deighton, explains that the focus is on the development of Durban as an inclusive city. Investors can expect further development in the areas west and north and west of Durban in both coastal and inland regions, along with development in the airport region.
While it is too early to tell if Durban will become the new go-to investment hotspot, it’s useful to see options for investors looking for an alternative to Cape Town. The property market offers excellent value for money, even in those upmarket areas. Towards the end of 2017, the most expensive suburbs were predominantly located north of the city and inland. According to Tahir Desai from Private Property, this indicates that buyers are moving away from the city in search of their ideal lifestyle.
The most expensive suburb in Durban is Mount Edgecome Estate in Umhlanga, with a median asking price of just over R7m. In contrast, the most affordable suburb is Durban CBD, with a median asking price of R450 000. One only needs to look at Cape Town as an example to see what can be done with sufficient investment towards lifestyle and security, to imagine what can be done in Durban over the next few years.
Sources: Private Property, Property24, Tongaat Hulett Developments, Trafalgar, FNB, PayProp, Mercer