Property & Wealth

SA 'township' properties boom as sub-Saharan real estate remains buoyant

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As we enter the fourth quarter of the year and global financial markets remain in turmoil, real estate in South Africa and sub-Saharan Africa seems to be acquiring somewhat of a safe haven status.

September traditionally brings a rough ride for the local financial markets. This year is no exception.

Equities have been particularly hard hit of late, with the resources sector reeling from repeated setbacks. The sector’s troubles have seen many previously highly rated shares lose more than 50% of their value since January. The South African rand has also slumped by more than 20% to the dollar over the same period.

Under these circumstances it is interesting to observe how the South African property market is stacking up.

According to the statistics for August, just released by the country’s largest bond originator, Ooba, SA's property market is still reflecting steady and positive growth in house prices – but at a “significantly” slower year-on-year growth rate. Compared with a year ago, the Average Purchase Price in August 2015 increased by 3.4% from R982 297 in 2014 to R1 015 766 at present. Point is, this low single-digit growth is a marked slowdown from the 11% recorded in the second quarter of the year.

Ooba’s CEO, Rhys Dyer, ascribes this slowdown to the consumer confidence index, which is at its lowest level in 15 years, worse-than-expected GDP figures, forecasts for continued poor economic growth and upward pressure on interest rates.

These concerns are also reflected in the market for so-called first-time buyers, which showed only a 0,9% year-on-year increase in the average price to R761 240. The silver lining is the fact that first-time home buyers still represent over 50% of Ooba's applications for home loans.

That consumers are under pressure, is evident from the reported 52% of all home buyers requiring 100% bonds as they apparently cannot muster the cash for an upfront deposit.

Dyer suggests that the slowdown in the upward trend of house prices, coupled with the willingness of banks to advance loans, “could signal a good time to buy property”. The good news being that:

  • the bond approval rate in August 2015 was 3.5% HIGHER than a year ago; i.e. an improved lending environment and pricing from banks; and
  • the Reserve Bank has held the repo rate steady at 6% and prime lending rate at 9.5%

In another particularly nice boost for local confidence, the FNB house price index for areas traditionally classified as black townships in the six major metropolitan areas rose by 17% year-on-year in the second quarter 2015. That is an up of 3.3% over the previous quarter.

According to FNB, house price growth in these townships continues to, overall, outstrip the traditional so-called white suburbs!

This buoyant mood appears to be mirrored across sub-Saharan Africa. Attendees and delegates at the Africa Property Investment Summit at the end of August at the Sandton Convention Centre in Johannesburg heard from several speakers that notwithstanding the slowdown in China, much lower commodity prices and major currency volatility in emerging markets, many of the continent's key economies continue to support large-scale infrastructure and property development projects.

Against the background of strong population growth, unlike as the case in most of the more mature economies of the world, and with rapid local urbanisation, the property shortage in most of Africa's major cities seems to have pricked the appetite of both foreign and local investors, with enthusiastic support from their governments.

by Eve van Basten

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