Property & Wealth

Property market keeps growing; lower end remains challenging

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Despite overall negative economic factors property prices are on a high. But affordability at the lower end remains a challenge.

Undeniably the South African economy ends 2015 in crisis. As a key benchmark the value of the rand has tanked (in real terms it has come down by more than 20% against the dollar since 2010); high unemployment prevails; overall the economy is in a semi-paralysed state of stagnation (there has been no tangible growth in 2015 and neither agriculture nor mining and resources can come to the rescue). 

Quite remarkably, and despite this overall negative economic background, property prices across the country have continued their upward trend. The national average growth was 5.8%, with KwaZulu-Natal at 7% and the Western Cape at 8% leading the way.

Challenge in 2016

The challenge in 2016 will be for SA to continue delivering affordable housing to its fast-growing population, in spite of a tanking economy.

According to John Loos, property strategist at FNB, the property market must maintain a supply capability leading to relatively lower real home values so that a greater proportion of the population can acquire formal housing at affordable prices.

By formal housing he is not referring to ground-level RDP housing schemes that cater for those who exit rural backwaters and those migrating upwards from the shacks that are the backbone of the entry-level urban and informal housing network. 

In this instance, formal housing embraces electrification, water and sanitation and increases the general sense of well-being that comes with higher education and health standards. This level of housing is the minimum requirement of the up-and-coming young middle class, ambitious to establish and maintain a higher standard of living.

Some interesting market trends

The availability of large tracts of cheap land near urban nodes is fast drying up. The challenge now is to find innovative alternative ways of continuing to provide affordable property at scale. The general and monetary capacity of the developers is becoming crucial to ensure a steady flow of new dwellings onto the market.

Not only is the challenge to make more land available, but also to utilise the existing residential land better by increasing the density of housing units per hectare. One only needs to consider the massive scale of delivering accommodation and homes as found in Hillbrow (Johannesburg), Sunnyside (Pretoria) and Sea Point (Cape Town). Such areas are extremely important in meeting the expectations of newcomers to the market by providing affordable housing close to places of work and with good access to public transport and other urban amenities.

Another interesting development is the increasing number of affluent young people who are, according to reports, investing in retirement estates. It seems they are anticipating the growing demand for rental properties by the retiring baby boomer generation while managing the risk of much higher costs when their turn for retirement comes.

As a result of the high crime rate across the country the demand is also rising steadily for housing in gated communities – usually designed for sectional title community living. The popularity of these developments is growing, not only because of the greater peace of mind they provide, but because the capital appreciation proved to be highly attractive as well.

Political impact

Some political developments had a marked effect on the property market during 2015.

Generally prices of property have stood up remarkably well but, according to leading estate agents, the stringent visa requirements introduced by the Department of Home Affairs had a massive negative impact on the demand for accommodation from tourists, and property from regular visitors. Rich Europeans wanting to escape their harsh winters by maintaining a holiday home in South Africa are not uncommon.

While the low rand should have provided a stimulus for direct foreign investment in the property market, the new visa requirements caused a noticeable stay-away by visitors from China, the rest of East East and from many of our traditional visitor countries as well. And let us not forget that 24% of the foreigners purchasing property in SA are visitors from Africa!

Make 2016 a green year

As world leaders and environmental activists gathered at the Paris Summit on Climate Change, the message became crystal clear: unless the world unites in curtailing generally wasteful habits, the earth’s problems are only going to get worse.

A local NGO, the Green Building Council SA, stepped in with some useful guidelines for green building practices and a tool to measure your efficiencies. 

Sadly, South Africa is among the world’s top 20 countries in terms of high carbon emissions and is at the same time facing an electricity crisis, which requires more coal-burning power. And due to the El Niño effect, a water crisis is threatening across the southern African region.

Greening homes in the design, building and renovation stages offers homeowners many direct benefits and savings on monthly running costs. For instance, using less glass in a building costs less plus it can be more energy efficient.

The benefits of going green are in the simple arithmetic of paying less for electricity, waste and water services, and in the satisfaction of knowing you are contributing directly to the increased health of the planet and the sustainability of your own and your family’s lifestyle.

Meanwhile, in addition to the many other rising consumer-cost pressures, home owners with bonds can now safely assume that SA is now firmly in an escalating or rising interest rate cycle and that household budgets will have to provide for increased monthly payments on mortgage loans, at least for the foreseeable future.

by Eve van Basten

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