South Africa’s residential market continues to be in better shape, with buyers who sat out the onslaught of the global financial crisis gradually showing confidence in the market.
Residential property players say properties in metropolitan areas are showing faster growth than most non-metropolitan areas. This has spurred some to describe the market as a good one to get in.
This view is supported by the strong demand shown by some residential areas, the growth in house prices, strong sales volumes and the short duration of properties being on the market for sale.
While the sector is not shooting the lights out, it is still showing decent house price inflation. Latest figures from property data analytics group Lightstone shows that the annual national house price inflation in 2014 stood at 6.64%. This is an improvement in the inflation figure from 2011 when inflation was only just above 2%.
On a provincial basis, Gauteng shows the highest inflation recording of 8.8%, followed by the Eastern Cape (8.6%), Western Cape (7.3%) and KwaZulu-Natal (5.2%).
Some major metropolitan areas are even trumping the rest of the province in terms of price growth over the last five years, says Lightstone’s head of residential research Paul-Roux de Kock.
Just in 2014, the City of Cape Town outperformed the rest of the Western Cape netting price inflation of 13.9% and eThekwini surpassing the greater KwaZulu-Natal recording of 6.4% (see above for provincial rates). The City of Tshwane followed suit by outperforming Gauteng with a price inflation of 9.9%.
The City is Johannesburg showed a different trend, with a price inflation of 7% lagging behind the rest of Gauteng.
“The City of Johannesburg however did not outperform the rest of Gauteng over the last three years. This is mainly because the majority of Gauteng properties are in metropolitan areas and City of Tshwane’s good price growth pulled up the Gauteng average,” De Kock says.
When looking beyond national nuances, property value segments are faring differently. The low value market with properties valued below R250 000 is the star performer, showing price growth of over 24%.
The low value market is followed by the mid-value market represented by properties worth R250 000 to R700 000 netting growth of 8.1%. High-value properties valued at R700 000 to R1.5 million follows at 6% and luxury properties boasting a value of more than R1.5 million show growth of 5.9%.
More buyers continue to trickle into the local residential market since the full swing of the global financial crisis in 2007. One would expect that the migration would translate to house price growth, but this is not the case, says Seeff Property Services chairman Samuel Seeff. Instead the market has seen shortages in the supply of properties – which Seeff says is more exacerbated in the urban metropolitan market.
Properties are also selling fast in the market. Seeff says “good properties” are in the market for at least two weeks before being snatched, whereas they would stay for three months in the market five years ago.
The shortages of properties continue to weigh the market. However, this might change as developers are taking an optimistic view into the residential market on the back of improving economic conditions. According to the Rode’s Report for the fourth quarter of 2014, the value of loans approved for residential and non-residential construction over the three-year period to the fourth quarter of 2014 grew at a compound rate of 26% per annum.
“This can only be the result of mortgage lenders relaxing their lending policies as the worst fears of Armageddon started to fade,” the report states.
This has had a positive spin-off for property developers to submit building plans, as since 2012 the square metreage of residential and non-residential building plans passed shows a compound growth of 15% per annum.
CEO of Jawitz Properties Herschel Jawitz says the residential property market continues to hold its own despite tough economic conditions. “If you look at the state of the economy, it is surprising that the property market is where it is… It is a good market to get into even if house prices are growing marginally,” Jawitz adds.
Despite a seemingly improved residential market, interest rates are expected to rise which Jawitz says “will create affordability issues.” This is also echoed by FNB’s household and property sector strategist John Loos saying that interest rate hiking may resume later in 2015, as opposed to previous forecasts of early-2016. Other factors which may dampen consumers and subsequently the residential market include hikes in personal tax and the fuel levy.
“We started the year expecting a 8% to 9% average house price increase for this year, but now expect an average nearer to 5%,” Loos says.