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SA’s Tourism Growth Spurs Property Investment

Over the past 20 years, the tourism sector’s contribution to South Africa’s gross domestic product (GDP) has increased significantly – with an average annual average real growth rate of 7.3 percent – an attractive proposition for both domestic and international property developers. By Tourism Tattler contributor Gaye de Villiers.

According to the Department of Tourism, in 2013 tourism contributed 9.7 percent to the country’s GDP and accounted for in excess of 1.4 million jobs, while in 2012 tourism generated R93 billion, making a 11 percent contribution to GDP and 10.3 percent contribution to total employment in South Africa.

Encouragingly, in December 2013, a total of 937 792 tourists (source Stats SA) visited South Africa – a record high, reflecting an increase of 7.6 percent over December 2012. During the entire year (2013), 9.6 million tourists were recorded in the country, which is 428 596 more than the previous year (source Dept of Tourism). Domestic tourists play an important role, contributing R24.3 billion to the economy in 2013 – up from R21.8 billion in 2012, and with the Department of Tourism looking to achieve a target of 18 million domestic tourists by 2020.

Dr Andrew Golding, CE of the Pam Golding Property group, says the rapid growth of tourism in recent years has been boosted by high profile events such as the 2010 Soccer World Cup and BRICS Summit, among others. “With its spectacular scenery, appealing climate, world-class infrastructure and wide range of tourism attractions spanning wildlife and eco-tourism, wine estates, beautiful beaches, top golf courses, adventure sports, corporate travel, conference venues and cultural tourism, South Africa offers a wealth of options for visitors to our shores.

“Although considered a ‘long-haul’ destination, South Africa is an increasingly popular location for tourists from Europe, the United States of America, Asia and Central and South America, as well as a growing number of visitors from the rest of the continent. While overall the percentage of international buyers in South Africa’s residential property market remains very low, at approximately one percent, we see similar trends reflected in our international buyer demographics.”

Cape Town leads the way

World-renowned Clifton in Cape Town, famous for its spectacular beaches, luxurious homes and iconic views. Image: Pam Golding Properties.  SA's Tourism Growth Spurs Property Investment Business SA Property 2

World-renowned Clifton in Cape Town, famous for its spectacular beaches, luxurious homes and iconic views. Image: Pam Golding Properties.

In Cape Town, home to renowned Table Mountain, one of the world’s new seven wonders of nature, the Western Cape’s tourism potential is further strengthened by the announcement that Qatar Airways will operate a new non-stop five times weekly service between Doha and Cape Town from early November this year. Among other accolades for the Mother City as a leading global destination is its ranking as number one on the New York Times list of 52 Places to Go in 2014. Most recently, it has been rated Africa’s leading travel destination and best cruise port in this year’s Travel Awards.

For the tourism industry and the property sector, Cape Town’s relevance cannot be over-emphasised. As Laurie Wener, MD for Pam Golding Properties in the Western Cape Metro says, “Cape Town’s aesthetic beauty, sophisticated yet relatively laid-back lifestyle and history is nothing less than seductive.
Further evidence of this is seen in the influx of major film companies – and bevy of famous film stars – who have discovered the unbeatable natural backdrops, local highly-skilled support services and facilities, and wonderful places to relax off set.”

She says apart from the direct benefits, tourism has further spin-offs for the property sector. “Domestic tourists in particular can find their decisions to purchase property positively influenced when visiting the region – by acquiring a home either for permanent relocation due the lifestyle or career opportunity, for leisure or pure investment. Gauteng and KwaZulu-Natal are the major perennial source of buyers for holidays and retirement while the increasing ability to conduct business electronically makes Cape Town a highly desirable choice to settle and commute as required. From an international tourism perspective the countries from which we see visitors looking to acquire property are currently mainly the UK, Germany, Holland, France, Belgium, Angola, Ghana, Democratic Republic of Congo, Nigeria, Scandinavia and Russia.

“Not surprisingly, the demand for property in the Western Cape among domestic and international tourists is mainly for the Atlantic Seaboard and other coastal areas, Boland and Overberg regions and the Garden Route. And with a considerable increase in foreign students coming to study at tertiary educational institutions, resulting in parents buying properties to accommodate them during the term and use as holiday accommodation for themselves, there is also demand evident in Cape Town’s conveniently situated Southern Suburbs, City Bowl and Central City.”

Property investment revival

Pam Golding Hospitality, a member of the Pam Golding Property group, is increasingly upbeat regarding prospects for the hospitality sector in South Africa, which has seen a strong revival in the last 18 months, driven by improved performance on the back of a better balance between supply and demand.

Kamil Abdul-Karrim, MD of Pam Golding Tourism & Hospitality Consulting says it’s been well documented that in the favourable economic and lending environment prior to the 2010 FIFA World Cup there was a supply boom that combined with the contraction in the economy, saw the hotel industry as one of the worst affected sectors in the economy. However, recovery in the sector, which began in 2012, has improved significantly over the past 24 months with the result that the hospitality sector is currently trading at occupancy levels above 60 percent compared with around 50 percent in 2011. Current July 2014 year to date average occupancies in Cape Town are running at 66.6 percent, well ahead of any other city in South Africa.

Business tourism surge

“Positively, the South African market as a whole is far more exposed to the corporate traveller than the leisure tourist – both international and local, and for this reason the recovery has been more pronounced in major metropolitan areas. The increase in foreign visitors has been in part led by an increase in business travellers to South Africa for events, meetings, exhibitions and conferences. This has become a popular destination for large conferences and the good news is there are more than 200 major conferences scheduled in the country over the next five years.”

Joop Demes, CEO of Pam Golding Hospitality, says a sharp increase has been experienced in hotel property values specifically in Cape Town and the surrounding Winelands, which is directly linked to increased profitability with RevPAR (revenue per available room) growth as one of the key drivers. “I anticipate South Africa as a whole to grow 2014 RevPAR in excess of 9 percent compared to 2013, well ahead of inflation, and with RevPAR growth in excess of 20 percent in greater Cape Town.

“Although increased demand and limited new room inventory has decreased the discount factor between the sales prices of existing hotels in relation to replacement value, there remain existing hotels that are underperforming and as such offer sound investment opportunities.

“ Underperforming hotels typically offer the investor the opportunity to refurbish and re-brand and to enter a booming Western Cape Hotel market literally within three to four months, as opposed to a greenfield project that will typically take three years plus.”

HICA 2014, the Hotel Investment Conference Africa, which took place from 14 to 16 September 2014 in Johannesburg, confirmed the increasing focus and appetite by global hotel operators as well as investors in Sub-Saharan Africa, including South Africa.

Adds Demes: “I am very positive about the hotel industry and its prospects at large in Africa but particularly bullish about Cape Town, the Winelands, Route 62 and the Garden Route, and forecast the average occupancy in 2014 for Cape Town to exceed 70 percent. The increasing demand for hotel rooms is spilling over into the Winelands and the rest of the Western Cape, and the average occupancy will grow further as demand is increasing and will continue to do so for at least three years until new room inventory enters the market. ”Global operators are queuing up to get their slice of the action and this in turn offers investors and hotel owners the opportunity to negotiate more competitive management contracts with the focus on fees, ‘key money’ and performance clauses.”

International hotel group acquisitions

Pam Golding Hospitality believes the South African market as a whole has improving opportunities, particularly for globally branded larger hotels in the major metropolitan nodes. Consideration needs however to be given to strategic high growth secondary nodes around the country that have an undersupply of quality hotel inventory.

Says Demes: “Of note is that Pam Golding Hotels was directly involved with the facilitation of seven foreign direct investment (FDI) hotel transactions in South Africa – one in Johannesburg and six in Cape Town, being partly new builds and party acquisitions, with an estimated combined historic investment value of R1.31 billion and with some 1 325 people directly and permanently employed as a result. We are hoping to announce a further R410 million in FDI acquisitions within the next few months. Over and above this, during the past seven years Pam Golding Lodges & Guesthouses has facilitated 54 FDI transactions with a total value of R444 million in the Western Cape, with an estimated 470 people directly employed as a result.

“The industry is a fast changing one – the strong need for hotel growth on the African continent has ushered in a wave of global management company interest such as Rezidor, Starwood, Hilton, and particularly Marriot through their acquisition of Protea Hotels, amongst others. South Africa has proven to be an important gateway to the African continent for these global players and their presence will fuel the appetite for investment from global investment players into the sector. Acquisitions certainly remain more attractive compared to greenfield projects. The discount to replacement value gap is narrowing but on average is still between 25 to 35 percent.”

For more information visit www.pamgolding.co.za or telephone +27 ())21 7101700 or email headoffice@pamgolding.co.za