A modern-day Groot Trek

The country is experiencing the modern-day equivalent of the Groot Trek, but this time in reverse. And like the first one, which lasted from 1834-1838, the current one is also having a major effect on the country’s demographics, property and jobs market.

The Groot Trek, for those who slept their way through history at school, is a term for the mass movement of mainly Dutch-speaking inhabitants who felt strongly enough about British rule over the Cape colony, that they packed their earthly goods, which included wives, children and recently-freed slaves and headed into the northern wilderness in search of land over which they could establish control and destiny.

The first Groot Trek took these hardy Boers into the areas of the Free State, Northern Cape, Natal, Transvaal and even parts of Bechuanaland, which today forms part of Botswana, where they lived relatively peacefully, with only intermittent clashes with some of the indigenous people who were making their way down from upper Africa.

But the Groot Trek was nothing like the Calvinistic-crusade as our history books and the murals on the Voortrekker Monument portray. While many were certainly driven by religious imperatives, a lot of them were very naughty and free-spirited, as portrayed by Robin Binckes and his controversial book Canvass Under the Sky (2012). Much of early trade with the indigenous people, says Binckes, was for dagga and even female entertainment.

Discovery of diamonds

Indirectly, the Groot Trek led to the discovery of diamonds in the Kimberley area in 1867. And soon thereafter, gold at the Witwatersrand in 1881, which kick-started the mining and industrial revolution that was responsible for most of the economic expansion of the 20^thcentury.

Admittedly, I am skipping out historical facts for which I could be attacked, but I am simply trying to make a point.

For most of the 20^th century, the great wealth in South Africa was created on the back of the mining boom. If you wanted to become rich in SA during this time, you headed to the golden dumps of Johannesburg to make your fortune in mining, mining finance and the service industry which served this large and booming industry.

In 1970, for instance, South Africa was the top producer of gold in the world, producing more than 1 000 tons.

Those days also saw the expansion of Cape-based businesses into the thriving mining and commercial headquarters of the country, with Naspers, for instance opening the Beeld newspaper in 1974 to compete with the once-mighty Perskor.

Salaries and wages, and property prices were always lower or cheaper in the Cape than in Johannesburg. Cape Town wasn’t called Slaapstad for nothing. Hell, which city elsewhere in the country, nay the world, would build a super-highway which simply ends in the middle of the city unfinished to this day?

Or a city that would allow someone to build the three ugliest buildings ever – the so-called tampon towers – right in front of one of the most recognisable natural heritage sites the world has to offer, Table Mountain? Stellenbosch, on the other hand, was a university town renowned for its wine estates, fruit and the rugby players it produced under the coaching skills of legendary Danie Craven. But it did, throughout this period, produce a business giant in the form of Anton Rupert, who built Remgro and thereafter Richemont into world-class business enterprises.

That was then and this is now.

How things have changed.

In less than 20 years, the wheels of fortune have turned, and turned some more.

What started out as a steady trickle from about the year 2000 of people from Gauteng and other parts of the country moving down south, mostly to retire, has now turned into a full-blown raging torrent of well-to-do and skilled people moving to the Cape in general and the Western Cape in particular. This movement gained further impetus when the Democratic Alliance took over the political management of first Cape Town itself and later the whole of the province in 2009.

It is indisputable that in this period the municipalities of the Western Cape have been better and more skillfully managed with less corruption and wastage, than towns and cities in other parts of the country.

The other day I went onto the website of the Drakenstein municipality (Paarl) to enquire about registering a car in my name. There was an option to send an e-mail if you had more queries, which I did (and I included my cell number). I nearly fell off my chair when I received a phone call the same day from a very friendly official asking if everything had been sorted!

Imagine that happening in the great metropolis of Johannesburg where its centralised bureaucracy has become the modern-equivalent of root canal treatment without any anesthetics.

The rich South and poor North

The time has long gone where people mainly retired and then moved to the Cape. Now an ever-increasing number of young families with school-going children are moving down to Stellenbosch, Paarl, Somerset West and Cape Town itself.

There are all kinds of numbers being thrown around. I heard from someone (who heard from someone) that about 45 000 families settled in the formal areas of the Western Cape last year. Where these numbers come from, I don’t know – but there is certainly some merit in them.

And then there is the rumoured study that shows that within the next ten years, about 75% of all high-net-worth white people will be living in the Western Cape. I have tried hard to get a copy of this report but have been unsuccessful thus far.

Last year, Brenthurst Wealth held an investment seminar – together with Moneyweb – at the magnificent Val de Vie estate outside Paarl. More than 75% of the people present were ex-Gautengers.

Val de vie, which has just merged with Pearl Valley to become probably the largest single residential development in the country (bigger than Steyn City), is experiencing a modern-day gold rush for its available land, with record sales month after month. The most expensive stands on the so-called gentleman’s estate, ranging from R8 million to R12 million, were the ones to sell the fastest.

Despite sharp increases in the prices for land, and with very high building costs, most of the phases at Val de Vie are now sold out. And, as Martin Venter, chairman and founder of the estate told me, most of the heavy hitters are not foreigners but from Gauteng.

The same is happening in other parts of the Western Cape, with many developments selling out almost as soon as they’re launched. A new frail care centre being built next to De Zalze estate outside Stellenbosch has a waiting list of more than 140 people.

Many areas in the Western Cape come with a natural shortage of more land to develop, such as the Atlantic Seaboard.

Further inland the availability of land for development is hampered by very expensive and ever-scarcer farmland, used mainly in the production of wines and in certain areas wheat.

The average house price in the Western Cape is now 40% more expensive than average prices in Gauteng and other parts of the country, and the differential is getting bigger and bigger.

According to latest FNB residential property survey on home prices, the other eight provinces declined in the fourth quarter of 2016, not only in real terms but also in nominal terms, while prices in the Western Cape were up by more than 10%.

It is also the only province experiencing above-inflation home rental growth, according to Tenant Profile Network.

Other contributing factors

There are other factors too, I feel, that are contributing to this Great Rush to the South. The Internet is a major factor as more and more careers and jobs can be done via the Internet, which reduces the need to remain in one geographical area. You can live in the Western Cape and earn a living all over the world. As this trend increases, more and more people will choose their home based on other factors than simply the need to be close to an office.

The decline in the rand too has boosted this trend. At R7 and below, many people still consider emigrating to other countries with their families. At R14 to the USD this option has been reduced considerably for many people.

Five years ago, R50 million would have bought you just over $7.1 million. Today, it can only buy $3.5 million which, after paying a million or two for a suitable property to live in, does not leave much for living expenses. So, what are the alternatives? Semi-grating to the Cape, away from ANC-controlled and collapsing municipalities.

I speak to many other Gautengers who would like to move to the Cape, but when they realise the huge price differential between what they have now, and what they could get in the Cape, they shelve the idea. Others, however, bite the bullet and accept a reduction in home sizes as a price to pay to end up in the Cape.

How long can/will this trend continue?

This is difficult to say and at some stage, the trend will slow down, purely for statistical reasons. But I think this trend has some legs before it starts tapering off as those who could have moved have already done so. That’s why the Western Cape residential property market remains the only bright spot for local investors in what is a very gloomy rest of the country.

Magnus Heystek is investment strategist at Brenthurst Wealth. He can be reached at magnus@heystek.co.za for ideas and suggestions.

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