Economic crunch hits CBD hotel project

The first major property development in the city has gone bust, in one of the clearest signs that Cape Town is not immune to the global economic meltdown.

The Phoenix Hotel in Strand Street, which would have been the subject of a R320-million development, will be auctioned on May 20 by Alliance Group, after the developers went into liquidation last year.

The developers had planned to convert the 81-year-old Phoenix into a hotel with 400 rooms, 140 residential units and a retail section on the ground floor.

Local officials and business leaders have downplayed the spill-over effects of the economic crunch, citing hundreds of millions pouring into the city. Authorities have also been upbeat about the province's economy, which has consistently outperformed national growth.

Cape Town's property scene attracted more than R1-billion in one year, the Cape Town Partnership said in its annual report in October 2008.

The business group also held up various construction plans under way as signs that the city had withstood the turmoil in the outside world.

But property experts were less optimistic, after the failure of the R320-million development in the inner city.

Rael Levitt, chief executive of Alliance Group, said he had seen a 300 percent increase in liquidated developments over the past year compared to the previous 12 months.

But the Phoenix development was the first of this size to fail. "There have been a lot of developments that have gone to the wall - not many in the city," Levitt said.

"There have been some in the northern suburbs that have been liquidated or stopped."

"Unfortunately it may be a trend that will grow. It's all linked to the recession and the residential property market, which is in distress."

ClareMart Auction Group chief executive Jonathan Smiedt said developers were often unable to secure financing halfway through a project.

That gave them no option but to fold. "There hasn't been a large increase, but there has been a fair increase in developers that have gone into liquidation," he said.

Rising interest rates over the past two years and record inflation levels have made buyers scarce and depressed house prices.

Average house prices fell by 8.2 percent year-on-year in February, Absa said earlier this month.

But Alliance Group's Levitt said prices may have fallen by up to 40 percent from their peak in 2007, based on prices achieved at auctions.

But all was not lost. Alliance has put a positive spin on the demise of the Phoenix Hotel project. The auctioneers emphasise the site's prime location in the up-and-coming De Waterkant quarter, which has become a new business hub.

Levitt said a number of potential buyers had already shown interest in the property.

  • This article was originally published on page 3 of Cape Argus on April 29, 2009

Article by: Gershwin Wanneburg - www.iol.co.za