The South African residential property market has performed strongly since the beginning of 2000 because of the support offered by various cyclical and structural economic and social factors.

During this period, the weighted average price of middle-segment housing (residential properties with a building area of 80m2-400m2 and a value of up to R2,7 million) and luxury housing (residential properties valued between R2,7 million and about R10 million) increased by a total of 294,7% (around 20% per annum) from R266 000 in the first quarter of 2000 to R1 050 000 in the third quarter of 2007.

House prices in the country�s coastal regions have also performed well since the beginning of 2000. In nominal terms, the average price of houses along the coast (80m2- 700m2, up to about R10 million) increased by 341,1% in total (around 21% per annum) from R315 200 in the first quarter of 2000 to R1 390 400 in the third quarter of 2007. This article focuses on the performance of the coastal property market in South Africa.

The analysis starts by defining the various coastal regions. This is followed by an overview of the various types of coastal property, the factors driving the coastal market and the advantages and disadvantages of owning coastal property.

An analysis of the major trends in some major coastal property indicators concludes the article. It touches on aspects such as house prices, land values, the affordability of property, building costs, and residential living trends, which are shifting towards higher-density housing.

Defining South Africa�s coastal regions Four of South Africa�s nine provinces border the country�s 2 968 km coastline: the Northern Cape, the Western Cape, the Eastern Cape and KwaZulu-Natal. All of these provinces, with the exception of the Northern Cape, are deemed to have well-established coastal property markets. For the purpose of this study, which focuses on various aspects of South Africa�s coastal property market, six coastal regions have been identified. These are:

in the Western Cape:

� the West Coast (Strandfontein to Melkbosstrand); � the Cape Peninsula and False Bay (Bloubergstrand to Pringle Bay); and � the Cape South Coast (Hangklip to Nature�s Valley). in the Eastern Cape: � from the provincial border with the Western Cape east of Nature�s Valley to the provincial border with KwaZulu-Natal just south of Port Edward. in KwaZulu-Natal: � the South Coast (Port Edward to Durban south of the N3 highway); and � the North Coast (Durban north of the N3 highway to St Lucia).

Types of coastal property

Single-stand houses: Most residential properties along the coast consist of single-stand houses. This is especially so in the smaller towns, where the availability of development land has not been a problem in the past. Flats and apartment blocks: In many fast-growing and popular coastal regions, blocks of flats and luxury apartments have been built over the years to cater for increasing demand. This type of coastal properties has increased in popularity because of factors such as the increasing scarcity of development land with a good view, security and maintenance, and the concept of relaxed and hassle-free living (which favours so-called �lock-up-and-go� properties with magnificent views). Lifestyle estates: Various lifestyle estates, especially golf estates, have been developed along the coast in recent years. These estates provide for a certain lifestyle, providing well developed sporting amenities, open spaces, exclusivity, tranquillity, strict access control, a high level of security and low-density living. Many of these estates have been developed on prime land with magnificent, unobstructed views of the ocean and coastline.

Vacant land: Vacant stands for residential development purposes, on the beachfront or with sea views, have been popular with many investors interested in acquiring coastal property for years.

Factors influencing the coastal property market A number of factors are believed to have an influence on the coastal property market:

Economic factors: Real economic growth averaged about 4% per annum over the past 7� years. This economic growth performance contributed to growth in employment and real household disposable income, which supported the demand for property countrywide, including in the coastal regions.

Banks� lending rates (prime and variable mortgage interest rates) were cut by a total of 650 basis points from 17% in June 2003 to 10,5% by mid-April 2005 on the back of declining inflation. Rates remained stable until June 2006, but have since been hiked by a total of 350 basis points as a result of inflationary pressures mounting in the economy

Fiscal policy measures: Between 2000 and 2007, personal tax relief totalling R69,8 billion was granted through the National Budget process. Transfer duty on property has been cut for five consecutive years since 2002. As a result of the lowered transfer duty rates over the past few years, the maximum value of a property exempt from transfer duty was R500 000 in 2006 and 2007.

Access to mortgage finance: Because of tough competition among the major banks for mortgage business, these institutions have launched a range of innovative products and marketing campaigns in an attempt to grow their business. Many new and existing property owners have been able to negotiate an interest rate concession on a mortgage loan, giving them the opportunity to acquire an investment property.

Investment demand: As a result of the abovementioned developments, many households have recently been in the position to sharply reduce outstanding mortgage balances on primary residences and/or investment properties. This has given them the opportunity to acquire another mortgage loan, or to invest the equity built up in an existing mortgage loan in coastal property. Investors buy houses, flats and vacant stands along the coast to earn a substantial rental income in peak holiday seasons, to capitalise on buoyant market conditions and to benefit from capital appreciation over the short, medium or longer term. They also invest with a view to building at a later stage for retirement, holiday, sport or other leisure activity purposes.

As many upmarket coastal properties (houses, flats and apartments) have become extremely expensive over the years, many investors have opted for fractional ownership to acquire and own lifestyle holiday property in these areas. Fractional ownership involves acquiring and owning a share in or a portion of a property for a fraction of a year and being able to use it every year for the amount of time the investor owns.

Household wealth: The coastal property market may, to a large extent, be driven by the more affluent households living in the major metropolitan areas in the country. Foreign property investors, earning hard currency such as US dollars, British pounds, and euros, have found local property relatively cheap in the past. They are also mostly interested in buying property along the coast, mainly because of the magnificent views, unspoilt natural surroundings, weather conditions and beautiful beaches South Africa can offer.

Location: Property (houses, flats and vacant land) near the beach and with a good view of the coastline and/or the ocean has always been popular with investors and holidaymakers. The extent of these attributes has been, and will always be, reflected in coastal property prices. The increasing scarcity, especially of vacant coastal land with a good view, has contributed to many older properties in these areas being demolished to make way for modern, higher-density residential developments.

Many investors with coastal property (built-up or vacant land) have become more reluctant to sell in recent times, although they may be able to achieve a huge capital appreciation. The reason is that they have realised that, if they sell, they are back in the market at the ruling market price. They often find that their only option is to buy a less attractive property of an inferior quality in a less favourable position at a higher price than that for which they sold their property.

In view of these developments, prospective coastal property owners will find it increasingly difficult and expensive to acquire property in these areas in future. Sporting activities: Water-bound sporting activities such as surfing, fishing, diving and sailing are, in some cases, dependent on specific weather conditions such as wind. They attract people, many of whom are professional sportsmen, to coastal areas.

Advantages of owning coastal property

The convenience of having your own, established accommodation during holiday seasons and any other time during the year without having to rush to find suitable accommodation and having to pay high rentals. This is an investment that may appreciate substantially in value over time, taking into account the supply and demand conditions for coastal property.

Because of the huge demand for accommodation in popular coastal areas during peak seasons, well located bed-andbreakfast establishments, guest houses and blocks of holiday flats have become sound investments over the years, taking into account rental income and capital appreciation. The prospect of rental income on privately-owned houses and flats during peak holiday seasons when demand for coastal accommodation is strong and rentals are high. Rental income can be used to finance mortgage repayments, rates and taxes and regular maintenance to the property. A coastal property, whether a vacant stand, flat or house, may serve as collateral for other debt.

Vacant land along the coast may be a sound investment: � A vacant coastal stand may give an investor the opportunity to get into the market if a fully built-up property is initially too expensive to afford. � Vacant land can be sold at a profit and serve as a deposit on a holiday house or flat at the coast. � Vacant stands with good views of the ocean and coastline, or which are right on the beachfront, are becoming increasingly scarce and are increasing rapidly in value and investment status. � The benefit of vacant coastal land is that the owner has the opportunity to build a holiday or retirement home according to his own specifications, taking into account views and wind directions, which may be of great importance at the coast.

Trends and developments in the coastal property market

House prices: Demand and supply conditions for residential property in coastal regions have caused house prices in these areas to grow exceptionally during certain periods in the past, with the result that prices in most of these regions have risen to levels well above of those in the metropolitan areas.

In all the coastal regions defined above, house prices performed strongly between 2003 and 2005. This growth was driven by many supporting factors, especially in the economic environment, such as sharply lower interest rates during this period.

In 2006, house price growth was relatively low in all coastal regions, probably as a result of declining affordability (see below) after the previous significant price rises.

Towards the end of 2006 and in the first half 2007 house price growth picked up markedly along the South African coast. During this period, economic growth and growth in real household disposable income remained strong, while interest rates were kept stable.

Land values: Along the coast, land, especially that with good views, has continued to increase in value in recent years, despite a general slowdown in the residential property market. House prices in these areas have reflected market conditions, but growth in land values has remained strong, rising at a faster pace than that of built-up properties as a result of an ever-diminishing supply of vacant stands.

Affordability of property: A generally accepted method of determining how the affordability of property has changed over time is to calculate the ratio of property prices to remuneration.

During the past number of years from 2000 to early 2007, the nominal year-on-year growth in house prices and land values in the country�s coastal regions outstripped that of remuneration per worker. This was a reflection of demand and supply conditions for residential property in these areas, and resulted in the ratio of house prices and land values to remuneration increasing to significantly higher levels by the first quarter of this year.

Building costs of new housing: The growth in the cost of building a new house along the coast was on an upward trend from 2001 up to mid-2004 � a period of strong growth in the housing market in general. With the market starting to cool off in late 2004, building cost growth in coastal areas also tapered off.

However, since the third quarter of last year, the growth in building costs for new housing in coastal regions picked up again, probably as a result of improved market conditions on the back of a good economic performance, strong growth in real household disposable income and stable interest rates. Factors such as demand and supply conditions for building materials and skilled labour in the building and construction sector might have also contributed to this development.

Higher-density residential developments: As land with good views has become increasingly scarce and expensive along the coast, higher-density housing � especially high-rise luxury residential apartments � is being developed in some of these areas. In popular coastal holiday destinations such as the Strand in the Western Cape and Umhlanga Rocks on the KwaZulu- Natal north coast, this trend already started a number of years ago.

Land scarcity and rocketing land prices in coastal areas are expected to lead to more higher-density housing and high-rise residential apartments being erected in various coastal cities and towns in future. To make it possible to recover land and building costs, these apartment blocks will probably have to consist of a large number of units of only an average size to make them profitable for developers and affordable for buyers.

Summarys

During the past 7� years, South African residential property prices have risen significantly on the back of a wide range of supporting factors.

Sharply higher property price growth was also evident along the country�s coast, pushing the prices of houses, flats and vacant stands in many of these areas to levels well above of those in metropolitan areas. Favourable cyclical and structural economic and socio-economic factors supported the coastal property market, but the limited supply of seaview properties, with demand continuing to rise at a brisk pace, has also caused prices to escalate significantly. As a result of the strong growth in property prices in the coastal regions, both housing and vacant land has become markedly less affordable since 2000. These developments have resulted in the erection of higher-density and even highrise housing in various coastal cities and towns in recent years. The expansion of South Africa�s coastal areas has sped up during the years and most of the available prime land has already been developed. Fauna and flora, dune systems, wetlands, estuaries, and water resources in most coastal areas are regarded as highly sensitive and are under threat of being severely damaged, polluted or totally wiped out as a result of increasing pressures from sprawling development. These trends and the rising concern about the environmental impact of further development of the country�s coastal areas will significantly limit the supply of new coastal property in years to come.

The demand for coastal property is expected to continue to outstrip supply, so property prices in these areas are forecast to rise further in future, causing coastal property to become even more exclusive and less affordable.

This content was used courtesty of Absa Research - Report: "The South African coastal property market"

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