Friday, 29 July 2011

The Wealthy still favours property

High Net Worth Individuals globally still place property at the top of their investments lists, on average 35 percent of their assets.

The 4.4ha smallholding Piedmont wine farm situated at the foot of the Helderberg Mountain between Stellenbosch and Somerset West. Asking price R25 million.
According to the Knight Frank Wealth Report 2011, property remains close to HNWI with property accounting for 35 percent of their investment portfolios.

The report suggests that the only thing these wealthy individuals would rather put their money into besides property is their own businesses.

In South Africa, HNWI at the moment are holding back from investing in almost all kinds of assets including property, said Lanice Steward, managing director of Knight Frank’s South African associate, Anne Porter Properties.

“The favoured channels for investment are gold, commodities (especially coal, steel and platinum),” said Steward.

She said there is a trend among shrewd investors to build up their portfolios by buying repossessed properties. These properties often sell at 30 percent to 40 percent below their previous values hence the boom in the auction property market.

“SA investors should therefore follow the HNWI as stated in the report and keep significant chunk of assets in property.”

Steward explained that the report indicates a growing conservatism and risk-aversion among HNWI investors. They favour already successful property investments rather than trying riskier or unproven areas.

“South African equities are attracting good capital inflows because the returns are above average when compared to those of the world and can be quickly disposed of if the market sentiment changes.”

She said they remain confident that the appeal of property investments in locations such as Constantia and Stellenbosch in the Cape and Kloof in Kwa-Zulu Natal will continue to attract foreign buyers.

Asked about the future of residential property in South Africa, Steward said the first signs of market recovery are now evident. However, this will take time and they expect a slow improvement throughout 2012 with a return to normal trading conditions by mid-2013.

Wealthy individuals have a knack for lifestyle living. They like to buy vineyards where they can not only produce wines but enjoy a unique residential appeal to suit their status.

This wine farm located at the top of the Helshootge Pass is selling for R38 million.
Steward shares the sentiment adding that previously, four big wine estates in Stellenbosch were acquired by foreign investors. The prospects of secure residential developments on wine and olive estates still appear to be reasonable with slow but steady sales, she said.

“SA vineyards currently have an average price of US$80 000 per hectare,” said Steward.

Estate agents operating in Stellenbosch say wine estates are in demand thanks to the region’s fertile soil and renowned wines.

Pam Golding Properties (PGP) area manager Louise Varga said the wine industry has helped to create some of the most spectacular real estate in Stellenbosch.

“The cost of wine farms depend on location, the size of the farm and scale of the wine making operation,” said Varga.

As an example, she said a large scale farm of about 100ha with a state-of-the-art, high volume cellar can cost approximately R30 million. A small holding of under 5ha might also sell close to the same price.

“Pricing depends on the wine label prominence, the size of export contracts, the quality of water supply in the farm and adds-on such as a restaurant, wedding venue, conference centre and guesthouse elements.”

PGP has on its book a 49ha boutique winery on the Old Paarl Road in Stellenbosch with an established vineyard and orchards. The asking price is R23 million with features such as a restaurant, wedding venue, a small conference facility catering for up to 16 people, a deli and art gallery.

Buyers can also choose from a variety of stock in the Boland and Overberg regions with prices ranging between R4.85 million and R7.8 million for 4.5ha. Investors enjoy the lifestyle of a working farm contained within the safety and convenience of a secure estate.

Located on the Old Paarl and Kraaifontein in Stellenbosch, this wine farm is selling for R23 million.
The Knight Frank report shows demand for vineyards has gathered pace in the past five years. Wealthy vineyard owners fall into two groups – the majority of buyers looking for a holiday house with a few hectares of vines and those who want to produce wine on a larger scale.

The overall prices of vineyards will be affected by commercial vineyard land values in line with bulk wine prices. Furthermore, the report states that although areas producing the best quality wines experience less volatility, bulk wine prices moves are likely to affect the property value of boutique wineries.

According to the Knight Frank Vineyard Index, the Western Cape region in SA is ranked as a developed property market with good buildings, possibly Cape Dutch-style. A 20 to 30 ha of vineyards is valued at US$82 00/ha.

The priciest in the index being Bordeaux and the Dordogne France, classic chateau style featuring six bedrooms , 2 to 20ha priced at US$642 000/ha. – Denise Mhlanga

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