Can you imagine paying R34 million for a 500 square metre sectional title apartment? At a massive R68, 000 per meter, even the wealthiest individual would find the price tag a trifle daunting. And according to ABSA's latest property index, the same amount
According to Lew Geffen Sotheby's International Realty, this scenario recently moved from the realm of imagination into the real world. A beach apartment in Clifton sold for this amount in February this year. The purchaser, a prominent UK businessman, paid the highest price yet recorded for an apartment in South Africa.
With each successive record property transaction, the question everyone is asking is: How much is too much for property on the Atlantic Seaboard?
Scarce supply - infinite demand
When we consider that an unnamed Hollywood director recently paid R42 million for a house in similar surrounds, the answer appears to be that there is no limit to how much buyers will pay for desirable property.
The principal reason given for the huge increase in the value of property transactions along South Africa's coastline is the age old economic equation of supply and demand. Supply, say the experts, is limited to those portions of South Africa's coast that are available for development. Beach-front property is scarce - and this fact is exacerbated nearer to major city centres where buyers and investors prefer to buy to keep their modern conveniences close at hand. As an example of scarcity, consider there are only in the region of 50 properties in Clifton with sought after beach access.
A second motivating factor is that the price tags on South Africa's sought after properties lags those placed on similar international properties. A recent survey showed that South Africa (particularly Cape Town) lagged many other popular global destinations in per metre prices for luxury apartments.
International buyers enjoy an additional incentive in that their purchases are made with strong currencies. When the rand devalues slightly against the dollar or the Euro, international investors suddenly find they can afford to splurge that much more in local currency. These buyers are also less likely to sneeze at rental returns of between 4% and 6% per annum.
Will we see R100 million soon?
Believe it or not, a property in Noordhoek, Cape Town changed hands for an impressive R150 million recently. This is the highest residential transaction recorded in South Africa - and involved a 17 hectare estate and 20th century house being sold to another British buyer, the Aspinall family.
Given the current trend in property prices, it will not be long before an Atlantic Seaboard property changes hands for R100 million or more. The continued depreciation of the rand against the US dollar, combined with a steady annual increase in property values in the sought after coastal regions, should see the R100 million hurdle being cleared in next to no time.
Remember, R100 million is a mere 13.5 million dollars to an offshore investor.
Editor's thoughts:
Foreign buyers seem to have an insatiable desire for prime beachfront property in Cape Town and other coastal towns. Do you think the local buyer is being priced out of the market? Is there any merit in the idea to place a moratorium on foreign property purchases in South Africa? Send your comments to gareth@fanews.co.za.