Can Cape Town’s growing housing market ultimately benefit South Africa’s economy?
The development of Cape Town began with the arrival of the Dutch in 1652, since then and largely thanks to its harbor, it has become Africa’s 3rd largest economic hub, one of the world’s most multicultural cities, and the largest city in South Africa. Its warm Mediterranean climate, advanced infrastructure, beaches and beautiful scenery have ensured its enduring popularity over the years, in fact it is the most popular destination for international tourists in the whole of Africa.
Cape Town’s GDP has seen annual growth of on average 3.7% thanks to the growth of specialized services sectors; such as finance, transport, logistics and business services, as well as significant growth in manufacturing, clothing and textiles, electronics and hospitality.
The growing GDP is helping to encourage a retail estate boom, however whilst some of the houses are being purchased by people permanently relocating into the area, as significant number of the properties are being purchased as summer homes by wealthy foreigners. Cape Town is in fact home to the highest number of highly priced mansions in South Africa.
The increase in the number of homes being bought as second homes is the fact that is most concerning observers, with many fearing that Cape Town is going to from suffer the same consequences currently being seen in London.
Will Cape Town suffer from the same problems seen in London?
London has been a well-established property investment destination for a number of years now, attracting the super-rich as well as the more typical overseas investors. Whilst the property market has slowed slightly since the surprise outcome of the Brexit vote, London is still seen as a very safe and rewarding investment opportunity. There are however some serious concerns that the prosperity of London’s housing market is actually changing the very fabric of London’s society.
A significant increase in the number of prospective investors from the Far East has been seen since the Brexit vote, with a number of savvy investors hoping to take advantage of the current GBP exchange rate and obtain a very good value investment.
The increase in foreign and buy-to-let property ownership has however had a detrimental effect on some areas of London, such as Portobello Road. The price of a one bedroom apartment in Portobello Road is now almost $625,000, forcing even highly qualified professionals such as doctors to become either perpetual renters, or move out of central London all together. Due to their foreign ownership, these properties are often left empty for months at a time, resulting in growing levels of contempt from the locals and a breakdown in community spirit.
Cape Town’s housing market challenges have striking similarities to those seen in London
Just like London, Cape Town is also seeing a significant increase in the number of very wealthy foreign investors buying up properties. Whilst this issue is not limited to Cape Town, the existing challenges remaining from the apartheid era, particularly the disparities between black and white land/property ownership, are exacerbating the problem.
Just as London’s middle class is suffering, so is the middle class in Cape Town, with many being priced out of the market or simply unable to meet the very rigorous new mortgage lending regulations implemented by banks following the 2008 financial crisis.
Estate Agents are also actively overlooking local buyers in favor of rich foreigners who are typically both able and willing to offer a higher sale price, and often in the form of a cash purchase. This is resulting in a significant increase in the number of Europeans owning second homes in many of Cape Town’s most prestigious areas.
This increase in demand pushed up the price of Cape Town properties by over 16% in the second quarter of 2016, the 3rd largest housing inflation rate in the world, surpassed only by Shanghai and Vancouver.
South Africa’s economy is struggling to generate much growth at the moment, so whilst the housing market in Cape Town is concerning some observers, the fact that it is growing at twice the rate of the rest of the country and attracting significant foreign investment is likely to ultimately benefit the country, even if it does mean that home ownership amongst the local population is significantly reduced, just as it has been in London.
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