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Upmarket not always best value

17 Feb 2006

Investors and homeowners who shunned older, lower- to middle-income areas in favour of luxury, upmarket suburbs may have lost out on some spectacular capital gains last year.

Statistics released last week by First National Bank show that house price growth in less trendy Gauteng suburbs such as Brakpan North (up 61%) and Theresapark (53%) outperformed their more affluent counterparts such as Hyde Park, Sandhurst and Bryanston. These price gains are nearly triple the average 22% (Absa figures) house price growth recorded throughout SA in 2005.

FNB's figures show that the same trend was noticeable in Cape Town, with Belhar (56%), and Uitzicht (48%) achieving the highest house price growth in fourth quarter 2005 (year-on-year).

Durban seems to be the exception, with a number of upmarket suburbs included in its top growth areas, such as golf estate Mount Edgecombe (66%), Morningside (40%) and La Lucia (23%).

FNB's latest Property Barometer also shows that traditional townships are experiencing strong buying activity, with house prices in Daveyton and Tembisa on the East Rand up 66% and 65% respectively last year. Soweto house prices increased on average by 54% in 2005.

It's ironic that many of these areas were previously (some still are) "red lined" by the banks, as they were regarded as high-risk mortgage lending areas.FNB property economist John Loos says that SA's ongoing property boom is making a significant contribution in upgrading previously less-favoured areas. He says that as the more illustrious addresses in former white, upmarket suburbs become increasingly "overpriced" the search for value will continue to shift to lower price suburbs. One spin-off of that trend will be a narrowing price gap between upper and lower priced suburbs/townships, says Loos.

Desirable suburbs
RE/Max regional director Bruce Swain says that older, run-down suburbs close to inner cities are the best place for investors to be as they offer huge redevelopment opportunities. In Johannesburg those would typically include suburbs such as Doornfontein, Troyeville, Bez Valley and Bertrams. Swain says in terms of the Cape Town market, Woodstock, Salt River and Maitland fit the bill.

Article courtesy of Finweek.

Upmarket not always best value

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