Average return on investment in Cape town City Bowl property

The city bowl is one of the most attractive prospects in Cape Town from a living and investment point of view.

Demand for houses in Cape Town’s City Bowl has resulted in the luxury end of the market growing 1 444 percent in rand value and 950 percent in volume in just five years, while house prices in the area overall have shown an average nominal return on investment of 16 percent a year over the same period.

At the same time, the capital return on investment for sectional title units is a staggering 17 percent to 21 percent.

A comprehensive survey of all suburbs in the City Bowl and CBD compiled by Lew Geffen Sotheby’s International Realty shows that since the beginning of 2008 a total of 5 978 houses and apartments have been sold in the area with a combined value of R12.375 billion.

And in the three years since the start of 2012 the sale of 2 720 houses and apartments in the City Bowl and CBD were sold to the value of R6 175bn. The final 2014 totals will still improve since the fourth quarter figures from the deeds office are still to be released.

According to the research 2013 was a record-breaking year with house sales recorded to value of R1.185bn. The year-to-date figure for 2014 of 122 sales worth R884 million indicates that we might see a back-to-back record breaking year again. Bullish sales during the first two quarters of 2014 amounted to R710m. The final 2014 totals will still improve once the fourth quarter figures from the deeds office are released.

The suburbs that make up the City Bowl are Devil’s Peak, Gardens, Higgovale, Oranjezicht, Bo Kaap (also known as Schotschekloof), Tamboerskloof and Vredehoek.

Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty says the keen demand for upmarket lifestyle living has been clearly illustrated by the increase of more than 1 000 percent in rand value and volume between 2008 and 2013 in the City Bowl in the luxury sector.

“In 2008 just two properties were sold for over R10m with a combined sales value of R21.5m, which escalated to 21 properties worth R332 051m during 2013.”

He says the demand continued in 2014, with 14 properties in the R10m plus bracket earning R211.3m.

The City Bowl’s most upmarket properties are mainly in Oranjezicht, Gardens, Tamboerskloof and Higgovale.

Brendan Miller, chief executive of Lew Geffen Sotheby’s International Realty Atlantic seaboard, which includes the City Bowl, says as far as the area’s house market for properties pegged at below R10m, the nominal return on investment for houses that were sold during 2013 and the first quarter of 2014 showed on average a 14 percent return a year over seven years.

“All the suburbs showed spectacular returns on investment of which Devil’s Peak at 18 percent, Higgovale at 15 percent and Vredehoek at 14 percent were the highest followed by Tamboerskloof and Oranjezicht at 16 percent and Gardens at 15 percent,” says Miller.

“The City Bowl luxury market segment for properties valued at R10m and over also showed a remarkable average nominal return on investment of 20 percent a year over eight years. The suburbs performing within the upper segment were Higgovale at 24 percent, Oranjezicht at 21 percent, Gardens at 15 percent and Tamboerskloof at 14 percent a year.”

Some outstanding examples of this spectacular performance include a property in Glen Avenue, Higgovale, which was bought in January 2011 for R6.5m and then sold during May 2013 for R16m, showing a return on investment of 48 percent over just two years and three months.

Ryan Greeff, Lew Geffen Sotheby’s International Realty agent for Vredehoek, Oranjezicht and Gardens, cites another example of a home in Bridle Road, Oranjezicht which was bought in January 2004 for R4.1m and sold again during August 2013 for R23.6m, showing a return on investment of 21 percent over nine years.

Finally, a property in Glen Avenue, Gardens, was bought in September 2007 at R8.5m and sold in December 2011 at R26.5m showing a return on investment of 32 percent over four years.

“Even on the assumption that these three properties were bought and renovated before being sold again, the ROI still demonstrates the remarkable investment potential of the City Bowl,” says Miller.

In all the survey shows that the best performing suburbs (as far as the sale of houses is concerned), since 2010, were Gardens at R1.240bn (278 sales), Oranjezicht at R1.033bn (192 sales), Tamboerskloof at R899m (191 sales) and Vredehoek at R798m (262 sales).

In the City Bowl’s sectional title or apartment market the exceptional performance continues with the total rand value of sales between 2008 and 2014 increasing by 54 percent from R723m to R1.112bn. Sales volumes increased by 27 percent from 551 units to 700 units.

According to Greeff, historically the most attractive areas for apartments in the City Bowl have been Gardens, Vredehoek, Tamboerskloof and Oranjezicht.

“In the past year we’ve seen apartments that are correctly priced in these areas selling in less than a month. There is huge demand for stock below R2m and when they come on the market – especially with renovated bathrooms and kitchens – they’re snapped up almost immediately.”

Greeff says one of his biggest problems in the current market is securing sale stock – especially sectional title units.

“The City Bowl is a prime location because of its proximity to the CBD and the public transport access provided by the MyCiti bus routes through the suburbs. This makes it an extremely attractive investment location,” he says.

According to the area research, the top selling areas of the City Bowl for apartments in 2014 were the CBD at R472m (297) Gardens at R205m (119 sales), Vredehoek at R138m (88 sales), Oranjezicht at R89m (55 sales) and Tamboerskloof at R78m (43 sales). This was followed by Devil’s Peak Estate at R26m (12 sales) and Higgovale at R40m (14 sales).

Says Miller: “The average capital ROI for apartments in the City Bowl is exceptionally good, with returns of between 17 percent and 21 percent a year for this area. Devils Peak is at 18 percent, Gardens at 20 percent, Higgovale at 17 percent, Oranjezicht at 20 percent, Tamboerskloof at 20 percent and Vredehoek at 21 percent.”

He says this also affects the rental market, because investors know they will get a high sales return on their properties, and the area is extremely attractive for rentals.

“Our research shows there is substantial demand in the City Bowl area at for Bachelor, one-bedroom, and two-bedroom apartments as well as houses priced between R25 000 and R35 000 a month.

“The monthly rentals in these areas vary substantially depending on a number of factors including size, location, condition, views, security, amenities offered and proximity to schools, entertainment and transport routes, but there’s a shortage of rental stock across all categories.”

Says Geffen: “There’s no doubt that the City Bowl is one of the most attractive investment prospects in Cape Town. It ticks all the boxes from a living and investment point of view.

“Because there is just about no development space left we expect this market to appreciate rapidly in the next few years as Cape Town grows and people value the lifestyle that the City Bowl offers being so close to the CBD and the Atlantic seaboard.”

Originally Published on 18th February 2015.