Purchasing a property is one of the biggest personal decisions made by most people. Even overlooking the huge emotional impact of choosing a home that is safe and comfortable, there is a huge financial impact: Most families will resort to large mortgages spanning 20 to 30 years with payments of approximately a third of their pre-tax income in order to finance their purchase. Similarly, selling a property is no easy decision either, and is also subject to both emotional and financial considerations.
One of biggest concerns for buyers and sellers is obtaining a ‘fair’ price for their property – and, if possible, a bargain buy or a healthy return on investment. However, this is difficult to judge without understanding the market conditions and knowing whether prices will most likely rise or fall in the near future. Through a variety of methods, this website aims to understand whether the Cape Town property market is currently over-valued or under-valued, and what its likely medium term prospects are.
One of biggest concerns for buyers and sellers is obtaining a ‘fair’ price for their property – and, if possible, a bargain buy or a healthy return on investment. However, this is difficult to judge without understanding the market conditions and knowing whether prices will most likely rise or fall in the near future. Through a variety of methods, this website aims to understand whether the Cape Town property market is currently over-valued or under-valued, and what its likely medium term prospects are.
Geographical Overview of Property Prices
The unique geography of Cape Town, dominated by Table Mountain and bordered by the Atlantic Ocean has created a diversified property market with significant variance in prices according to geographical area. Best illustrated by the super-imposed map below, it is easy to notice the variance in price between areas. (Please note: The following prices are in 'adjusted' Rands per square meter, which allows for comparison of Houses with gardens with Apartments - for more detail see the tab above)
With prices highest in the areas closest to the commercial ‘heart’ of the city and the nearby Atlantic Seaboard and Southern Suburbs, it is interesting to note how prices attenuate outwards, but remain stronger along arterial traffic routes such the N2, N3 and M5.
Is Cape Town Property Over-valued or Under-valued?
Correct pricing is a difficult characteristic to establish – there is no definitively correct way to calculate what the property price should be. To overcome this problem we have analysed the Cape Town property market by using several different techniques – each with their own benefits and shortfalls: First, by looking at the market through a historical lens to analyse trends and compare these to the current position. Next by comparing current property prices with the cost of building a new house or apartment; should current property prices start to match or exceed new-build construction costs, then it becomes feasible for developers to build more houses, enlarging supply and reducing prices. The third technique is to look at prices through a business lens by calculating the potential return on investment if the property was rented out. A high return would indicate that property prices are too low, while a low return would indicate prices are too high. The final method is a comparison of property prices with income levels by analysing the buying power of different household income levels. Unaffordable property prices are unsustainable and will (eventually) result in a correction – whether by price drop or stagnation, government intervention or consequential exodus of people.
But all of these methods have their individual shortfalls: Historical trends may not be best forecast of future prices. Building costs can vary dramatically depending on construction designs. Low rental returns will be acceptable if there is perceived risk-reduction or long-term capital growth and unaffordable property prices can be overcome by renting or living in smaller accommodation. However, by combining the insights gained from each method, the individual shortfalls can be balanced out and a holistic analysis of the Cape Town property market can be made.
But all of these methods have their individual shortfalls: Historical trends may not be best forecast of future prices. Building costs can vary dramatically depending on construction designs. Low rental returns will be acceptable if there is perceived risk-reduction or long-term capital growth and unaffordable property prices can be overcome by renting or living in smaller accommodation. However, by combining the insights gained from each method, the individual shortfalls can be balanced out and a holistic analysis of the Cape Town property market can be made.