Cape Town - The strength of Cape Town's property market was reflected again at the weekend when developers were swamped with R200 million in sales following the launch of a waterfront residential development at Century City.
But the experts said more was at work than just a good development.
John Rabie, the managing director of Rabie Property Projects, said it originally intended to sell 150 units at The Island Club development over the week.
The first phase of the development comprises 294 apartments. Seventy-five units were sold in the half hour before the launch. Demand was such that another 50 units were brought on to the market, with architects working through the night.
This was in spite of developers pushing prices up by another 10 percent because of the rush.
Irvin Rode, an economist for property consultancy Rode and Associates, said it was foolhardy to try to call the top of a property cycle. But the situation "is beginning to look like a feeding frenzy".
Foreigners were "having a second look" at Cape Town properties as a "desperate" measure because of weak equity and investment performances overseas.
And the trend is not confined to Cape Town. An Absa survey of the property market found that nationally residential prices had gone up 16 percent on average, which Rode said was a particularly strong performance given that inflation was 10 percent and heading downwards.
He said the surge in house prices in general was most likely being driven by expectations of an interest rate cut and because of the perceived "safe haven" status of property, particularly given the evidence of a slowing local economy.
Warning against properties that might seem "too good to be true", Rode said buyers needed to take into account how easy it was to calculate a property's replacement value when considering buying.
Jack Trevena, the general manager of Nedbank Homeloans, said the property business remained robust in spite of the relatively high mortgage rate. He pointed out that the Reserve Bank's monetary policy committee was due to meet soon.
"Homeowners with floating rates on their mortgages are banking on the first interest rate cut to materialise after this meeting," Trevena said.
A 100 basis point rate cut could translate into R2 640 in savings a year on a R300 000, 20-year bond.
Rabie said The Island Club development had attracted interest from elderly people, foreigners and younger people who appeared to be drawn by the security and lifestyle features and by the fact that the apartments were substantially cheaper than those at the V&A Waterfront development.
Debbie Prinsloo of Investment Solutions, a multimanager, said the outlook for the listed property sector was also good because volatile equity and financial markets had motivated investors to consider more secure and stable investments, such as property and bonds.
Property unit trusts, as a proxy for property performance, generated a 14.9 percent return in the year to March, sharply outperforming bonds, she said.
Historically, bonds and property returns had tracked each other closely. But over the past five years yields from listed property averaged 15.2 percent against 13.4 percent from bonds.