Trends and Outlook on South Africa's Property Market
The property market in South Africa has been on a rollercoaster ride along with that of the rest of the world in the recent past, thanks to the global economic recession, amongst other things.
There are trends, however, having their own identity and deviating from international trends. This includes some improvement in sales as well as the changing face of the home buyer in the South African context.
Dieter Deppisch, Head of Property Data Research at SAPTG (South African Property Transfer Guide), talks us through the highlights in terms of trends in the local market, how South Africa fares on the global scale and what we can expect in the coming months in the property market.
“We’ve seen a number of interesting trends at play. Happily, the rate of decline in sales volume is slowing after the sharp declines we saw during the recent recession. We have seen the return of year-on-year house price inflation- good news for home owners and financial institutions.” says Deppisch. “However, recovery is much slower in non-primary sales which include buy-to-let sales and leisure market sales. South Africans continue to have a high debt-to-disposable ratio of 78,9% hampering affordability and making access to home-finance challenging. Many cash-strapped consumers have joined the throngs of those downscaling for financial reasons.
We focus our attention on the R300, 000 to R5, 000,000 bracket of residential properties, the most heavily traded segment in South African real estate. In the year up to May 2010, the volume of full-title sales in South Africa declined by 7% whereas the total value of sales declined by just 1%.”
Cash-buying (defined as homes purchased without a mortgage bond) has seen a significant increase. While 19% of full title houses and 25% of sectional title houses were bought cash back in the 2006-2007 period, the current period has seen this jump to 32% of full title houses and 41% of sectional title properties. However, these statistics must be considered in context. Cash buyers as a component of the buying pool have always been there. The contraction of the market, however, means that cash buyers now make up a larger percentage of the overall buying pool than previously was the case.
Factors affecting Affordability
“Ooba, South Africa’s largest mortgage lender, has seen 48, 8% of their bond applications declined by a financial institution in June 2010. High deposits continue to be demanded. The average buyer of a R1,000,000 home in South Africa would have to have at least R200,000 available in savings for a deposit, transfer fees, and other costs associated with the purchase.
The average price of a full-title house is currently R1,029,168, an increase of 6% y/y. The average price of a sectional-title dwelling is R787, 812, an increase of 5% y/y. Rapid growth in sales is expected to continue in the medium term due in part to the lack of saving ability of South African consumers. This is in sharp contrast with other emerging market economies, notably India and China. With an average savings rate of -0.5% South Africans, for the most part, finance their lifestyle by credit and not by income,” explains Deppisch.
“This regrettable economic condition is further compounded by the fact that of the 18,210,000 credit-active consumers in South Africa, only 39.5% are current with their account payments. The other 60.5% are in arrears or worse, have judgments and administration orders against them. Some even begin to use one loan to pay off another,” says Deppisch.
Buyer Race Profile Changes
Another trend is the changing face of the buyers’ race profile in South Africa. In the past, the inequalities of the apartheid policies meant that predominantly white people were active in the property market. Now that gap is closing, an encouraging trend more representative of the South African population. In 2005 60% of home buyers were white, 22% were black, 7% were coloured, and 11% were Asian. Fast-forward to 2010, where we see a shift. Only 44% of home buyers are white, 34% are black, 8% are coloured, and 14% are Asian. It is expected that in coming years white buyers will dwindle to around 20%.
“This trend can be overlaid with the anomalous situation found in the estate agent community. As of May, 2010, 88.1% of all estate agents are white, only 6.1% are black, 0.3% coloured, and 5.5% are Asian. Sadly, some black buyers, many of whom fall in the “black diamonds” category, (the economically healthy, even affluent minority of the black population), believe they will get better service from white estate agents. The Institute of Estate Agents and the Estate Agencies Affairs Board are working hard to rectify this unhealthy imbalance,” says Deppisch.
Obviously this stunts growth in the number of non-white estate agents. Although apartheid is no longer part of the political landscape, the majority of black South Africans are not profiting from the property market nor are they gaining experience in the real estate arena. Fortunately millions of black families have benefited from the state-run RDP program which has seen small brick/mortar homes being given to them free of charge. The ownership rights afforded to them by this program may, in time, become a significant factor in the housing market.
“There is a misconception that there are a lot of foreigners buying property in South Africa, but as much as we don’t have national reliable statistics, anecdotal evidence suggest 2.5% to 5% of buyers being non-South Africans. Results from FNB’s recent survey of a group of estate agents reveal just 2% of sales going to foreigners.” says Deppisch.
The good news is that the first quarter 2010, Knight Frank Global House Price Index revealed that South Africa has moved up, from position 11 to 6 out of 47 countries in the world. The UK holds position 11, position 22 being occupied by the US, mainly because their property markets suffered greatly during the recession. The last position is occupied by Estonia. The country holding the first position is China.
Deppisch believes that while the worst is over, the real estate market will remain pedestrian and growth will follow a rather flat trajectory in the next 24 months. Growth in 2010 is forecast at 8,5% slowing to 6,5% in 2011. SAPTG does not expect the return of a sellers’market before 2013.
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