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Drought does little to deter W Cape property investment - analyst

Apr 22 2018 21:15
Lameez Omarjee

Cape Town – When it comes to deciding to invest in the property market in the Western Cape, investors are more wary of national political developments than they are of the water crisis.

According to analysis by Lightstone, a property company which specialises in data analytics on properties in South Africa, investors are still buying properties in the drought-stricken region.

Paul-Roux de Kock, data and analytics director at Lightstone, said this is because property is often a long-term decision for investment. He was speaking at the Property Buyer Show held in Cape Town this past weekend.

“If people see problems are solvable in the short to medium term, then they are not worried about it,” he explained.

Comparing data as far back as 2013, there has been a general upward trend in the Western Cape across different kinds of property, including free-hold stands, estates and sectional titles.

However, in January 2016, Lightstone registered a dip in the market. This was before the drought, De Kock pointed out. The reason for the dip was "Nenegate", or the firing of Finance Minister Nhlanhla Nene by former President Jacob Zuma on December 15, 2015.

Political developments or long”-term worries such as the stability of the country has a "bigger impact" on negotiations on property prices for buyers and sellers, De Kock explained.

Comparing data from January 2017 and January 2018, De Kock showed that listings, transactions and bond issuance ticked up over the past year. "If people were worried about the drought, we would have seen a drop," he said.

De Kock explained that the buying patterns of foreign investors are also observed to better gauge the trends in the market, as these investors often have unlimited options worldwide, compared to local buyers.

The proportion of foreign investors who were buying in 2015 were 3.5%, this dropped following Nenegate, but then picked up in 2017 and has continued on an upward trend, registering 4%.

"Foreign buyers are more susceptible to worries, but they have not been deterred by the drought," he said. "This is how we reached the conclusion that the drought won’t have such a big impact as everyone thought it would."

Speaking more generally on the outlook for the national property market, De Kock explained that, over the past five years, the residential market failed to beat the rate of consumer price inflation.

There could be an upturn if there is a turnaround in the economy this year, however, this effect will be limited until the "noise" from land reform dies down, he added.

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