Cape Town City Bowl offers Inflation Beating return on Investment

Investors in Cape Town’s city bowl are enjoying excellent returns on their investment, with Vredehoek recording the highest nominal average return of 16 percent a year, followed by Gardens at 13 percent and Devil’s Peak at 12 percent.

Ryan Greeff, city bowl agent for Lew Geffen Sotheby’s International Realty says: “Recorded over a period of five to seven years to date, these returns are based on the total profit measured as a percentage on the original buying price, rather than the year on year growth rate which is calculated on the total number of sales in the area and the rand values.

“The year on year growth rate, however, is always a good indicator of the popularity of an area, as is the number of new developments. We’ve seen some very high returns on investments in the area – as much as 21 percent a year over short periods – in some of the more modern and well-kept blocks.”

Although the city bowl offers investors a wide choice of properties, from starter bachelor pads and quaint Victorian homes to modern penthouses and luxury family homes, sectional title properties are proving most popular, and make up 60 percent of property ownership in the area.

Gardens, the largest of the city bowl suburbs, comprises 65.71 percent (2 436) sectional title properties and 32.24 percent (1 195) single title homes, whereas Vredehoek, on the slopes above De Waal Drive, has a slightly more balanced split of 58.92 percent (1 579) sectional title units and 41.08 percent (1 101) single title properties. However, the small adjacent enclave of Devil’s Peak has only 14.46 percent (59) single title units and 85.54 percent (349 units) are sectional title properties.

Josh van Tubbergh, city bowl agent for Lew Geffen Sotheby’s International Realty says: “We see more movement on the sectional title units nowadays as these are often bought to renovate and sell on or as investments and are now prime for a profit. In the single title housing market more owners are hanging on to their properties and renovating.”

Comprising Devil’s Peak, Gardens, Higgovale, Oranjezicht, Schotschekloof (Bo-Kaap), Tamboerskloof, Vredehoek and Zonnebloem, there was a time when the city bowl was an affordable area for young professionals and low to mid-income salary earners working in the city centre.

However, the sharp increase in property values and, notably entry level prices, in recent years has placed the area beyond the reach of many first time buyers wanting to get a toehold in the market.

Says Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty: “In 2007 it was still possible to buy a comfortable two-bedroom apartment in Vredehoek for around R1m, but now that same apartment will be nudging the R2m mark or more, depending on location and condition.”

He says that sales measured according to price bands over the past 18 months reveal that in Gardens, Vredehoek and Devil’s Peak, the most active sector of the market is the entry to mid-level segment. Records show that during this period 279 properties priced below R2.5m were sold to a total value of R400m, whereas there were only 57 sales in the R2.5m to R5m price range.

“Also notable is that the gap between listing price and selling prices, particularly in the lower to mid-level segment of the market, has steadily diminished as demand has overtaken supply,” says Geffen “and we’re finding that homes which are correctly priced are often snapped up, sometimes within days of being released.”

Greeff attributes this surge in property prices and increased demand in the city bowl to several key factors.

“As Cape Town’s population has steadily increased over the past decade, so too has traffic congestion during peak hour and this has led to increasing demand for accommodation close to the city centre. And, not only is the city bowl conveniently close to the CBD, it is also a stone’s throw from the beaches, the V&A Waterfront, the University of Cape Town (UCT) and many other popular amenities.

“Also big draw card,” says Greeff “are the excellent schools in the area, the convenience of MyCiTi bus route and, of course, the eclectic and cosmopolitan feel of the city bowl, with its quirky neighbourhood shops and cafes.”

Van Tubbergh says: “New developments in the area are also pushing prices up and, as the city bowl cannot expand much more, people are paying a premium for what is available.”

Greeff says these same factors also contribute to the active rental market in the city bowl, where a substantial percentage of investors buy to rent.