Cape Properties: Exotic and a Bargain

I've come to the conclusion that property in South Africa is now among the best bargains in the world, in both absolute and relative terms. On this trip, I stuck to Jo'berg and the Cape; it's a big country and I simply put myself in the hands of my fairly numerous South African relatives. I can't make any recommendations on Jo'burg property because although it's cheap, I can't see the opportunity, and have no personal interest in it. That's not to say parts of Jo'berg aren't quite nice; the northern suburbs (Rosebank, Sandton, Illovo, Saxonwold, etc.) are thoroughly white; you wouldn't know these areas from any upmarket enclave in Europe or North America to judge by the people in the stores and cafes. It's just that the whites are a privileged enclave in a sea of much poorer people, most of them young, many with chips on their shoulders, from a different race. And that reduces its appeal considerably. The Cape has very different dynamics.

Two things are driving real estate prices in the Cape: Immigration of whites from the rest of South Africa, and of Europeans. Whites from the rest of South Africa are drawn to the Cape partly because it's the prettiest part of the country, and has the best weather, partly because it's already the whitest part of the country, and that fact tends to draw even more whites. And partly because it's where South Africa's four million Cape Coloured live. The Cape Coloured are a thoroughly mixed blood group, with their own ethnic pride and racial identity, who are generally allied with the whites. They add some political balance to a country with about 6 million whites and 32 million blacks.

The Europeans are drawn by the same things, but even more by how incredibly cheap SA is. South Africa is only a 10 hour overnight plane ride from Europe, and there's no other place nearly as close that can compare. The increasing tide of Europeans serves to reinforce property rights in SA, since it's one thing for a government to steal things from its citizens, but something else again with foreigners. I'll give you some examples from properties I actually visited over several days, all roughly within a two hour drive from Cape Town. I'm a big believer in unique property, and all these qualify. Refer to CI90's for a full discussion of the whys and wherefores.

250 ha with over 1 km of shore, mostly steep picturesque cliffs but with a fairly incredible cove featuring a private beach. Only 12 km from George, this one should become a hotel-golf complex, R13 million.

Sandy Cove
263ha with 1.5km seacoast, and another prospect for development as a hotel-golf complex, in that it's already part of the Mossel Bay municipality, and located between two European developments, R16 million.

Kippie Horn
100 ha with 2km of beach, located 30km west of Mossel Bay, R4.3 million.

Property X
(I simply can't remember its name), 696 ha with 1.5km of coast, including a large home plus manager’s houses, located 18km west of Mossel Bay. This one is somewhat cheaper because (unlike the others) it's not yet rezoned for development, but should get about 50 building rights R4.5million.

To put this in perspective, a hectare is 2.5 acres, a kilometer is .65 miles, and there are R7.2 to the US$. Most of what I looked at were development properties, simply because I can see what's likely to happen with white South African and European immigration, I've been involved in this kind of thing quite a bit and I can do simple arithmetic. Take Property X. I can't see getting hurt buying 1,750 acres with a mile of drop-dead coastline in a great location for US$625,000, especially since it includes a nice house. But if you take the time to get the permits and put in the necessary infrastructure (in this case just dirt roads and power), you should be able to move 50 lots at about US$100,000 over time, acquire some nice neighbors, net several million dollars, and keep about 1500 acres for the future.
Will I do it? Maybe. I think this is certainly the right time. And I have relatives who I can trust to develop it properly for a piece of the action. Should you think about it? Well, not only will you have to eyeball it yourself, but also you'd do well to move there while it's happening. It's not what you'd call a set-and-forget investment; although, it certainly could be if you wanted to simply tie up the money as a property speculation.
Several years ago I recalled what was actually the first international property deal mentioned in this newsletter, in the very first issue, November 1980. At the time, the Leopard Rock Hotel, a fantastic stone castle in the Vumba Mountains on the Rhodesia-Mozambique border, was available for US$80,000.

Several colleagues in the investment business said I was crazy for even mentioning such a risky proposition. A couple of years ago, however, it was sold for about US$8 million. I could have bought it in 1979, made a lot of money, and had some great stories to tell. But I couldn't have done what I'm doing now if I had, so I probably made the right choice. On the other hand, some of my readers back then were probably just working for a wage, and still are today; they should have gone for it. Choices. Choices. And the clock is always ticking…

Article by: by Doug Casey -