RESIDENTIAL PROPERTY has no doubt been one of the worst performing asset classes over the past 18 months. Stringent mortgage lending criteria introduced by the National Credit Act (NCA) in mid-2007 - plus an economy that spiralled into recession for the first time in 17 years - sent housing sales and prices tumbling in many residential areas.
Housing analysts say one of the upshots of the slump is that South Africans will be forced to stay in one home for longer. The good old days of buying a property - whether a primary abode or a buy-to-let - in virtually any suburb and being assured of making a packet when you sell three or four years later are over. In future it will undoubtedly take much longer for the average homeowner to make a decent profit on a re-sell.
However, bricks and mortar still offer the potential for great returns over the longer term. The trick will be to identify those neighbourhoods likely to outperform the market in terms of capital appreciation. That means suburb selection becomes more relevant than ever. Admittedly, choosing where to live is often determined by personal circumstances, such as age, marital status, place of employment, whether you have school going children and, of course, your financial standing. But over the next few years capital growth prospects are likely to become a far more important driver of property buying patterns.
To that end, Finweek has ranked SA's best performing suburbs over a three-year period, with the assistance of property research group Lightstone. We reckon suburbs that have been able to still show solid growth in the midst of what's arguably been one of SA's worst property recessions ever will more than likely continue to outperform the market over the next few years.
We have used Lightstone's house price data for five cities - Johannesburg, Pretoria, Cape Town, Durban and Port Elizabeth - in two price categories: middle-income suburbs with average prices varying roughly between R700 000 and R1,9m and upper income suburbs, where average prices exceed the R2m mark.
It needs to be said the most expensive suburbs aren't necessarily the best performers in terms of price growth. In fact, cheaper suburbs have generally delivered better capital growth over the past three years than their pricier counterparts. Another interesting trend that's emerged from Lightstone's data is that price growth in traditional white suburbs in close proximity to former townships have performed particularly well, no doubt on the back of the continued migration of black families to suburbs that aren't too far away from their former homes.
Golf estates within city boundaries that lure mostly primary homeowners have also increased in value faster than normal suburbs over the past three years. Homebuyers are clearly prepared to pay the premium for the greater security, access control and lifestyle amenities offered by golf estates. In fact, no less than seven golf estates feature in our top suburb rankings.
Interestingly, a golf estate that caters to middle-income buyers has also made it into the survey. Jackal Creek, in North Riding (Johannesburg), is one of the first primary home golf estates in SA offering sectional title homeownership opportunities (land and building) for less than R1m. Jackal Creek showed average house price growth of a whopping 49,9% over the three years to 7 December 2009, placing it as the fastest growing suburb in Johannesburg's middle income category.
In the upper end category the top performers include swanky gated estate Carlswald Estate (Midrand) and golf estate Eagle Canyon (Honeydew, on Johannesburg's western outskirts), with annual growth of 37,1% and 17,2% respectively.
Cape Town's middle-end suburbs that delivered the best investment returns over the three-year period are the northern suburbs' Vredelust (Bellville) and Pinehurst (Durbanville), with annual growth of 21,5% and 20% respectively.
Rondebosch East (in the southern suburbs near a host of good schools and the University of Cape Town) delivered growth of 15%/year. Up-and-coming Woodstock and Mowbray near the city bowl also ranked among the top five. Woodstock is undergoing huge redevelopment and has over recent years become popular among newly-married couples seeking an affordable foothold in the property market, particularly young professionals and creative types working in the city.
Cape Town's upper end suburb that offered property investors the best money-making opportunity over the past three years is the V&A Waterfront, which boasts average price growth of a hefty 28%/year.
Basil Moraitis, Pam Golding Properties (PGP) area manager for the Atlantic Seaboard, says demand at the Waterfront has been driven by a high proportion of foreign buyers, including "swallows" that spend their summers in Cape Town. Wealthy local homeowners wanting to scale down from large properties in outlaying areas are also increasingly migrating to the Waterfront. Moraitis says excellent security, proximity to shops, restaurants, hotels and the CBD are key drawcards.
Durban's middle-end suburbs that came out tops include Red Hill (in the Durban North area), with price growth of 25,2%/year. Clairwood, La Mercy - where Durban's new international airport is being built - and Plantations also outperformed.
Golf estate Mount Edgecombe (in Umhlanga) beat other upper end suburbs, notching up impressive growth of 19%/year over the past three years. Westmead, Herrwood Park and Durban North are also clearly favoured by Durban's well heeled.
Hatfield emerged as Pretoria's top middle end suburb. It's popular among students and academics, as it's only a stone's throw from the University of Pretoria. Hatfield house prices rose by an average 16,6%/year over the past three years. The more established suburbs of Muckleneuk, Lynnwood Park, Waterkloof Heights and Irene Farm Estate (the quaint country village south of Pretoria) also featured among Pretoria's top middle end suburbs.
Two golf estates made it into Pretoria's luxury suburb rankings: Centurion Golf Estate and Woodhill, which have seen annual growth of 12,7% and 11,3% respectively. The old-money enclave of Waterkloof also ranked among Pretoria's top three luxury suburbs.
House prices in Port Elizabeth tend to be much lower than those of SA's other major cities. Hardly any suburbs have average prices exceeding R2m. As such, Finweek ranked Port Elizabeth in one category only. Top performers include Glendinningvale (25,3%), Humerail (23,1%), Parsons Hill (16,2%), Pari Park and Newton Park (both 16%).
Louis van Niekerk, area principal for PGP in Port Elizabeth, says Parsons Hill is particularly sought after among younger families with children. It offers large homes in leafy surroundings and is in close proximity to well-renowned schools, such as Grey and Collegiate.
Humerail is currently luring more of an upmarket crowd, as developers have started redeveloping many of the older Transnet homes in the area. The suburb offers beautiful vistas of the bay and borders the discerning neighbourhoods of Humewood and Summerstrand.