Pent-up demand for gated lifestyle investments with security
Lifestyle gated estates are a big deal in South Africa. According to a 2016 Lightstone report on estate living, it was found that residential properties within estates make up around 15.1% of the total market value. This is particularly interesting, since residential estates made up only 5.1% of the total volume of real estate in South Africa. In 2016, the average home price in South Africa was R700 000, with the average home in a gated estate being around the R2 million mark.
Having grown in popularity over the past few years, it’s clear that estates aren’t just a passing trend. There are over 7000 freehold and sectional title scheme estates with a total amount of 335 000 properties with a collective value of R800 billion according to Lightstone and demand is picking up. At least one in ten South Africans choose gated communities when making residential property purchases despite a drop in new estate developments. The latest stats from ABSA suggest that residential building activity has contracted for the first quarter, and projections for the rest of 2017 is to remain under pressure in the rest of 2017, which will be the result of the outlook for the economy, household finances, consumer confidence and building confidence.
What makes a good estate?
With a record number of estates around the country, it’s important to keep our sights on what distinguishes a good estate from a bad one. A well-known benefit of estates is their security benefit as well and lifestyle convenient aspects. Years ago, this may have meant building a wall around a bunch of houses and calling it a day. In today’s market, however, advances in technology have meant the bar is considerably raised.
As Dr Andrew Golding points out, however, it goes beyond security: “The trend is towards so-called lifestyle estates which encompass work, live, play and shop, all within a secure environment which provides a sense of community.” It’s this sense of community that many South Africans are willing to pay a premium for. How this is achieved will differ from one estate to the next, depending on the layout and availability of amenities. Regardless of the type of estate, one thing is clear: A good estate is one that offers residents a better quality of life than they would’ve had elsewhere.
Professor Francois Viruly, associate Professor at University of Cape Town says that estate living has attracted a lot of criticism from authorities for only targeting high-end individuals. He would like to see more mixed-use schemes for the lower end of the market.
Capital growth investment and good rental returns
According to Lightstone’s July 2017 Residential Property Indices, the inflation rate of sectional titles has held surprisingly stable over the past year (around 4%), whereas freehold properties has been steadily decreasing. In real terms, this translates to sectional titles being a relatively safe investment, with better chances of good returns. Another interesting statistic was recently revealed by Rode’s Report for the first quarter of 2017.
It states that flat rentals are generally outperforming house price growth in Johannesburg (7% growth); Cape Town (6%); and Pretoria (6%). On average, house prices – including both freehold and sectional title – grew between -3% and 8%. This is good news for those looking to invest in estates, as it’s been found that tenants are willing to pay more for benefits like security and communal areas.
Lifestyle estates have boomed over the past decade, with developers constantly resetting the standards of what constitutes quality. As in any market, estates offer different types of lifestyles and solutions to different demographics.
Two of the most popular types of lifestyle estates at the moment are golf and eco estates. A steady stream of these has appeared across the country, with some of the most prominent being located in the Western Cape and Gauteng respectively. The popularity of these variations on estate living is largely due to the lifestyle options they offer residents. In addition to this, the green movement has taken hold, with an ever-growing number of buyers taking the eco-friendly factors of a property into account when investing.
Diverse landscapes and a wide range of natural attractions means the Western Cape offers prime examples of high-quality lifestyle estates. Historically, the property market in the Western Cape has seen stronger growth than the rest of the country, with a steady stream of investments from Gauteng and beyond.
According to Lightstone’s report, Cape Town has seen an inflation rate of around 12% in the early months of 2017, as compared to Johannesburg’s 4%. In general, it’s also been found that coastal property sees a higher inflation rate (7.7% in 2017) when compared to non-coastal’s 3.7%. While this means property prices are higher in the Western Cape than elsewhere, it also bodes well for investors, as healthy returns are more likely.
While the amount of available properties in the Western Cape aren’t enough to meet the growing demand, buyers are spoiled for choice when it comes to luxury lifestyle estates. In particular, areas surrounding Cape Town are popular.
Source:Monique du Toit