How Cape Town’s drought led to a housing market downturn

The poolsides are quiet in Cape Town’s V&A Waterfront district. Filling swimming pools was banned under city-wide emergency measures introduced in response to an extreme drought that hit several years ago. Since then, while restrictions have been relaxed, homes have been hard to shift in this high-end area, with sales falling to their lowest levels in a decade.

In January 2018, Cape Town municipality officials forecast the apocalyptic “day zero” — the day the city of 4.5m people would run out of water. Inhabitants were told they had three months before that happened: showers were shortened and farmers abandoned agriculture practices to avoid a crisis.

In the end, the city managed to evade day zero, but the drought hit the housing market hard. “Waterfront was completely dead,” says Richard Hardie, CEO at Knight Frank Estate Agent South Africa, which recorded just four sales in the area the year ending August 2018.

Given the drought alert, buyers were thinking: “Why would I get a holiday house if I can’t have a shower and can’t use the pool?” Hardie says.

There are still restrictive measures in place — such as limiting hose pipe usage to before 9am and after 6pm — but swimming pools are allowed again. “You can do what you want but it’s all just in moderation now,” he says.

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The effects of the drought were still being felt last year. In the third quarter of 2019, house prices in the Atlantic Seaboard area were down 7.1 per cent on the same period in 2018, according to First National Bank (FNB). This follows median price increases of up to 200 per cent over the decade 2008-2018 for Green Point, Sea Point and Waterfront.

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“Before the water crisis, Cape Town was experiencing strong growth in property prices,” says Siphamandla Mkhwanazi, an FNB economist. He says a lot of demand in the Waterfront area came from wealthy outsiders, either from Johannesburg or overseas.

Five-bedroom house, Bantry Bay, $4.4m
Five-bedroom house, Bantry Bay, $4.4m © Guy Lerner

Growing property prices came despite the fact that South Africa’s economy was struggling — it even fell into recession several times in the decade following 2008. While local buyers were losing their jobs, wealthy buyers from abroad and other parts of South Africa were driving Cape Town’s housing market, says Mkhwanazi.

In 2018, the average property price in Cape Town had risen to 6.6 times the average household income. “The drought facilitated the [market slowdown], but it needed to happen anyway,” says Mkhwanazi.

Cape Town’s luxury homes have been hardest hit, with prices dropping 30 per cent since mid-2017, according to Knight Frank. FNB analysis shows that in the second quarter of 2019, average prices across the city grew just 0.5 per cent year-on-year — at the time, annual inflation was at 4.4 per cent.

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In Bantry Bay, along the Atlantic Seaboard, a five-bedroom contemporary house with a swimming pool is on the market for R65m ($4.4m), available through Pam Golding Properties. The same agent is selling a four-bedroom house in Camps Bay for R20m ($1.3m).

According to Hardie, the drop in prices has resulted in more demand for cheaper properties — those that sell for about R5m (or $330,000) — with many going to first-time buyers or Airbnb investors. According to an FNB report, in the first quarter of 2019, there were 3.3 times more first-time buyers in Cape Town than there were in the same period of 2017.

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Four-bedroom house, Camps Bay, $1.3m
Four-bedroom house, Camps Bay, $1.3m

While droughts may have kick-started the downturn in Cape Town’s property market, today parts of the city face the opposite problem: an excess of water. Rising sea levels have meant increased coastal erosion in places such as Milnerton Beach and parts of the Eastern Cape.

To protect the properties on the coast, the City of Cape Town is in the process of implementing “hard-engineering interventions to protect infrastructure”, mostly involving the building or repairing of sea walls and rock revetments in areas such as Sea Point and Strand, says Marian Nieuwoudt, the city’s mayoral committee member for spatial planning and environment.

However, some locals are unimpressed. “There is anxiety that the municipality is not doing enough to improve infrastructure and protect the coast,” says Mkhwanazi.

Buying guide

  • Buying costs amount to 8-10 per cent of the purchase price. Buyers must pay a one-off transfer duty for properties valued above R900,000 ($61,000), as well as conveyancer fees and a registration fee to the deeds office
  • Last year, the City of Cape Town fixed maximum flow rate of shower heads at 7 litres per minute and stated that all swimming pools must be covered when not in use to avoid evaporation

What you can buy for . . .

$75,000 A one-bedroom flat in a complex in Rondebosch, including a shared garden and swimming pool
$875,000 A five-bedroom house in Camps Bay, with a swimming pool and garden, as well as a separate two-bedroom apartment on the top floor
$4.5m A five-bedroom house with a swimming pool and private borehole in Bantry Bay

More at

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