Cape Town shows signs that the residential property market is still alive, but for how long?

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  • Rawson Developers launched and sold more than 100 new residential units this week. The company says demand remains high in Cape Town.
  • Ithemba Property Development says, like essential goods, affordable rental units have become resilient to income fluctuations.
  • But FNB economist John Loos says the impact is yet to be felt in the residential market.

On Monday, Rawson Developers sold more than 100 units in its new live-and-pay development in Cape Town's southern suburbs.

Never mind that it was still in the middle of a lockdown in SA and that an increasing number of companies are announcing intentions to retrench staff.

In fact, in April, in the heart of the lockdown, the company sold out its other development in Observatory - also in Cape Town.

But Rawson Developers had to be a bit creative to boost demand. The developers guaranteed investors rental for the first year when the units are ready for occupation in 2023.

Similarly, when launching its new development this week, the company marketed some units on online deals site OneDayOnly, offering hefty discounts, including one of more than R250 000.

Also, all this is now happening online, which requires a big mindset shift. Given that property is the biggest investment most people ever make, it usually makes them uneasy about signing on the dotted line without physical interaction.

Half of the development was sold in the first day, and these aren't necessarily cheap properties. The cheapest "micro" unit retailed at more than R1.1 million with the OneDayOnly discount, and the most expensive penthouses cost around R13 million. All 60 of the micro units were snatched up within hours.

"Cape Town has always had amazing demand. We are close to UCT, so we do get a bit of the student population coming through. This specific area of Cape Town definitely has high demand. I think a lot of other developers are probably worried and holding back till they feel more certain," said Brad Morgan, marketing manager for Rawson Developers.

This demand in Rawson Developers' residential units is in stark contrast to what the Covid-19 pandemic has done to the commercial property market, especially retail and office sectors, where landlords have had to cut their rent to keep tenants or live with vacant spaces as the work-from-home movement grows.

People still need to live somewhere

JSE-listed Atterbury, which has mixed-use and residential developments in Johannesburg's inner city, said while it observed a "slight slump" in its collections during the hard lockdown, the demand for affordable residential units remained resilient and its collections have recovered to near-pre-crisis levels.

"[The] residential property market is not homogeneous, and different parts of it respond differently to different stimuli or shocks like Covid-19," said Carel Kleynhans, director of Ithemba Property Development, one of Atterbury's partners in the inner-city residential developments.

He said while the markets for luxury seafront property, "walk-up" flats and inner-city affordable rental would respond very differently to various economic circumstances; the company has found that in the current crisis, affordable and well-located rental accommodation acts more like "an essential good" as it is very resilient to income fluctuations.

"When times are tough, people economise on their expenditure and often move to a smaller, better-located place – but at the end of the day they still need to live somewhere," he added.

Morgan said to sell upper-end rental units, developers need to be even more creative than they were before.

"We've basically created a five-star hotel living environment but in an apartment block," said Morgan, adding that to cater for the price-conscious consumers, Rawson Developers created the 29 square metre "micro" units, but had to make them liveable by providing more sharing facilities within the development.

But residential property may yet feel the Covid-19 impact

However, John Loos, economist at FNB Commercial Property Finance, said while residential property may experience less of a dip than retail and office property, this sector of the market is still going to feel the harsh impact of Covid-19.

"I do believe that residential will see some significant full-blown decline in values, with demand weakening in response to what looks like a severe recession, employment and household income loss. Yes, the affordable segment is likely to come off less impacted than the higher end, with a greater search for affordability in times of financial pressure," he said.

That said, Loos added that he did not believe that any segment could escape without some downturn and that individual developments didn't quite present a picture about the overall market.

With Statistics SA's building data showing that the number of residential units plans passed declined by 15.2% in 2019 and sharper year-on-year decline in the early months of 2020, Loos says time will tell how 2020 ends.

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