Woodstock and Sea Point cited as sound investment areas

Although there are still good returns to be made in the South African property market in general, many property investors are at a crossroads as they mull over the most likely sector of the market to provide the best returns.

Rob Stefanutto, Director of Developments for Sotheby’s International Realty Atlantic Seaboard. says in a Cape Town interview, that although there are profits still to be made, the market is slowing.

He forecasts more modest average price gains of 10-15 percent over the next several years, which is substantially lower than the 35 percent annual returns recorded in many of Cape Town’s areas during the past three years.

“In my opinion, people who buy property as an investment or speculation would do well to focus on less popular suburbs like Woodstock and Sea Point. These areas were previously not seen as having the same investment potential, but are now starting to transform, making way for new urban chic developments, similarly to the way New York’s Meat Packing District started its transformation during the eighties.”

“These up and coming areas close to the CBD are being cleaned up and offer the investor the opportunity to make greater profits in the long term.”

Stefanutto says in Woodstock, it is still possible to purchase properties for around R2 500 square metre, but with the influx of small businesses looking for ‘character space’ on the outskirts of town demand is growing with people moving in and renovating.

Seemingly, there is seldom a shortage of tenants for these properties, which are popular with young professionals keen to be close to town but unable to afford rentals in the more established, mature areas.

“Developers are finding it increasingly difficult to find cost effective opportunities. Costs of development land near the metropolitan areas is on the increase, as less becomes available. It is a matter of time before the land and building costs start to outstrip achievable unit prices in new developments. This can only but drive the second hand home market where, one can buy and renovate for far less than the cost of purchasing a new unit.

“It presently costs around R7 000 to R8 000 square metres to build high quality buildings and a finished unit in a new development in places like Green Point and Sea Point will cost at least R 17 000 square metre - the cost of building alone will drive the second-hand market and prices can therefore only increase in this sector.

“My advice to property investors is that having had several good years, the time has come to take profits in the more popular areas and reassess where available capital should re-enter the market, as there may be better opportunities in either the less popular property areas or other asset classes in the short term.”

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