The Property Market Cycle in the City Centre

As we head to the end of the first quarter of 2021, it's a good time to review the property market and understand where we've come from and where we might be heading with apartment sales in Cape Town City Centre. In 2020 there were a total of 122 sectional title apartment sales recorded on CMA under R5m. (Over R5m there were just three apartments sold). The average selling price overall was R1,789,481 and the average rand per square metre value from those sales was R26,863m2. A further look into what was actually selling last year shows that 115, or nearly 95% of those apartments sold at R2,5m or under. Just over 40% of the overall city centre market was represented by apartments selling at R1,5m or under. So, it's very clear that the city centre residential sales market remains dominated by properties under R2,5m, reflecting the fact that investors are looking for predominately one- bedroom apartments. Property owners looking to sell apartments that have a market value above R2,5m face a tougher, smaller market where there is less demand from buyers.

So, how did the market in 2020 compare with previous years? Looking back at sales data for the previous ten years from 2010 to 2019 is a useful time frame to understand the property cycle. In 2010 there were just under 100 apartment sales in the city centre, with the average sale price being R1,223,329 and average rand per square metre just R16,043m2. From 2011 through to 2017 there was a very clear upwards trend as the market rose year on year, peaking at 353 sectional title apartment sales in the city centre in 2017. In 2017 the average apartment sale had increased to R2,359,479, with an average of R39,537m2 selling value. Essentially, average selling prices almost doubled over this seven-year period, with rand per square metre values increasing by nearly 250%. At this point the market was clearly at the top of the cycle and ultimately was not sustainable. In 2018 all indicators dropped significantly in the city centre residential market. From a high of 353 sales in 2017, there was a reduction to 225 in 2018, with both the average selling price and R/m2 values coming down to R2,270,937 and R36,303m2. 2019 saw further downward trends to just 142 apartment sales, with the average sale under R2m for the first time in four years, and the R/m2 dropping below the R30,000m2 mark for the first time in three years.

So where to now? This ten-year analysis of city centre residential sales data suggests that the property market is following a full cycle as it has always done over hundreds of years. It rises, then falls, then rises again. The length of that cycle varies historically, but generally ranges between seven and ten years. The previous peak in the city centre market was around 2005/2006. Everyone has an opinion on where the property market is heading and there is rarely consensus from those that follow the market. There is a mix of speculation and prediction. Data for the first two months of 2021 shows average selling prices picking up to just over R2m, with R31,775m2 as the average value. However, the data is limited and it's maybe too soon to extrapolate this to the rest of 2021. How much the COVID 19 pandemic played in the suppressed property market in 2020 is debatable. There is usually more than one factor at play. There is a view that the market is somewhere at the 'bottoming out' part of the cycle, and that as we head through 2021 into 2022 we will start to see a slow, steady recovery as the property market starts to climb into the upward curve of the cycle. The signs of confidence are there. A number of new developments in the city centre have launched, and are selling well off plan, at values above the 2020 market performance levels. Investors certainly appear to be buying into the future of the city. There is a level of investment from big developers and property funds in the central city maybe not seen since the early 2000's. A new generation of residential and mixed-use developments will start springing up on the central city skyline over the coming eighteen months, and that will bring with it a renewed energy and rejuvenation to the live, work, play environment that the city has been known for.

In the short-term property owners wishing to re-sell their investments will need to be keenly priced. At present there are over 350 city centre one bedroom apartments advertised for sale on Property24. In the R1,5m and under market there are nearly 100 apartments for sale. There is an element of optimistic over-pricing still present in the market. In competitive market conditions for sellers, what sells, and what sells relatively quickly, are well-priced properties. It is essential that sellers use the services of a professional agent, and ideally one that is area specialist, with a track record in the city residential market. A good agent will not always tell a seller what they want to hear. They will advise them on the reality of the market and realistic expectations. 2021 will continue to present both challenges and opportunities to those that keen to ride on the property cycle and all it has to offer.

[Note: All sales data from CMAInfo.co.za]