Junk status may hurt property values

As an old apartment block in Claremont were ripped to pieces, dust filled the air on Cavendish Street opposite the Citadel offices. On Friday April 7, as the demolition of the four storey block of flats took place, residents walking by stopped to watch in awe as huge chunks of the building came crashing down to the ground.

Blocks of flats have been shooting up in Kenilworth and Claremont Village, with prices starting at R1 million.

Property prices in these areas have risen steeply in the past few years, seeing a price growth of 41% for sectional title and 57% for full title, but local estate agents fear South Africa’s recent junk status downgrade could cause values and sales to take a nosedive.

Claremont and Harfield Village Seeff property consultant Deidre Tracey said the agency had seen a steady flow of people heading into the Claremont Village area due to the rising prices in Harfield Village.

The total sales for the area, which is bounded by Chichester Road, Rosmead Avenue and Doncaster Road, are almost R50 million in the past year with an average selling price of around R1.5 million.

Sectional title sales rose from 17unitssoldin2013to 21 sold last year, with the selling price climbing from R837 000 a unit to R1 183 000.

The average selling price for full title sales spiked from an average price of R1 231 765 in 2013 to

R1 933 077.

Whether these increases will be hit by the recent downgrade of our credit rating to junk by Fitch and Standard & Poor’s is something estate agents like Remax’s Sandy Hotz are worried about.

Ms Hotz said prices had gone up in the area and there was a demand for property in Claremont Village and Harfield, but the junk status rating had drummed up feelings of insecurity among buyers and estate agents alike.

“The rand has dropped by 11%. It is very unsettling for anyone. There is a feeling of insecurity. There has been a poor response to show houses, and we also have a shortage of stock,” said Ms Hotz.

Norgarb Properties principal Lew Norgarb said if interest rates rose because of the downgrade and made property more expensive, it would slow down the property market countrywide.

“What is interesting to note is that in the previous year it took, on average, 14 days to sell a property which doubled to 28 days in the past 12 months. By comparison, our Claremont agents have reported that for the same time period, properties took on average 33 days to sell and that has now increased to 38 days.

“We have seen Harfield Village and the immediate surrounds weather some pretty ferocious recession storms and perform better than many other suburbs in the Western Cape.

“The strong sense of community and the village vibe with all the restaurants and parks are not going away in a hurry and the area remains in serious demand. Hopefully, these suburbs will remain resilient if need be,” said Mr Norgarb.

Ms Tracey said it was hard to tell exactly what impact the downgrade would have on property because most people buying in the area were buying a property to live in and people had to have a place to live.

Ms Tracey said currently demand was so great that well-priced properties sold within a month of listing. She attributed the good performance of the area to the rise in demand for the concept of “village” living.

“The opportunity to live in a small community and in close proximity to trendy eateries and to have excellent services and facilities on offer nearby, are all adding to the attraction. The walkability of the area is a big drawcard. It is still largely a seller’s market and there is a shortage of good properties for sale,” said Ms Tracey.

Seeff’s managing director, James Lewis, said the property market across the southern suburbs, stretching from Woodstock to Tokai above the M5 had generated more than R8.4 billion in sales last year which equated to 40% of the total value of property sales recorded in the province during the same period.

“That means that about eight property sales were concluded on average each day across the area. Well-priced properties below the R8 million to R10 million price range are still selling within four to six weeks,” said Mr Lewis.

He said the area remained very active despite a slower market in the property sector overall, in terms of sales and rentals.