In depth look: South Africa’s residential property market holding up well
It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
The year (2017) began with cautiously optimistic sentiment as the rand stabilised and, having navigated the choppy waters of a technical recession in Q1, it appeared that the ever-resilient residential property market had again weathered the storm.
Much like our residential property market, the Rand has also shown remarkable resilience to ongoing political turmoil – helped in part by the benign global environment, which has ensured that investors have retained their appetite for risk and are thus willing to keep investing in South African assets.
Then, following the shock waves of being downgraded to junk status in April, the easing of the interest rate by 0.25% in July in response to the weak economy (with growth under 1% this year), coupled with contained inflation, to some extent helped offset the ongoing challenges being experienced.
However, as things stand, political uncertainty is likely to delay further rate cuts for the foreseeable future and the economic situation is in somewhat of a ‘holding pattern’ until the ANC elective conference in December, when hopefully there will be some clarity and some indication of where things are headed.
As highlighted by a recent report by Standard Bank, rand movements remain sensitive to the dollar, and the tax cuts proposed by US President Donald Trump could translate into the Federal Reserve Bank hiking rates faster than expected, which would in turn most likely see selling of SA assets by foreigners in order to take advantage of a declining spread between US and local real interest rates. This would result in rand depreciation and ultimately a rise in interest rates in SA as the Reserve Bank would be forced to hike rates.
Following the recent Medium-Term Budget, it is apparent we will need to wait for the Budget in 2018 to determine how the government proposes to restore the sustainability of fiscal policy and achieve some form of debt stabilisation and fiscal consolidation. We are also hoping for initiatives will help drive access to home ownership. Until then, the prospect of additional credit rating downgrades in 2017 is a factor to consider.
Business as usual – broad overview
But even in the current environment, people need somewhere to live, so to a large degree it’s a case of ‘business as usual’, as long as there is a realistic sense of the fact that at the right price, and the right location, there is huge, pent-up demand.
Underpinning the ongoing sustainability of our housing market is an ever-increasing demand for housing which spans all sectors and price bands, further fuelled by an emerging middle class which is becoming increasingly prosperous across a broader base.
In order to unpack the current status of the residential property market and opportunities presented, it’s essential to understand its various nuances, and that there are many different segments within the market, geographically as well as according to price band and product type.
Perhaps most notably, a young generation of aspirant home buyers and renters, semi-grants and people relocating as normal life stages and events drive activity are all ensuring continued demand in the housing market. And with building activity not yet fully recovered to pre-recession levels, this means that in many key hubs and prime locations, predominantly in the major metros, demand appears to be outstripping supply – particularly in the case of sectional title properties which are more affordable to purchase, less expensive to maintain and better suited to current lifestyles, offering security and lock-up-and go convenience.
In the property market, the age-old expression, ‘Knowledge is Power’, could not be more apt, as it empowers both sellers and buyers to make sound, informed decisions. Market knowledge is key to making good property choices and investments, particularly in the current uncertain market. Whether buying or selling, it is critical to reach a considered and informed decision which takes into account a number of factors, including current national and local market trading conditions, various macroeconomic factors impacting on the housing market, supply and demand, recent prices achieved and the suitability of specific neighbourhoods to suit the particular lifestyle and requirements of you and your family.
Although our housing market has been slowing for several years as it faces economic headwinds of subdued growth, rising inflation and interest rates, the regional housing markets have shown extremely divergent performances in recent years, which highlights the need to research before deciding what segment of the housing market to invest in. This is where we come in.
Reviewing the latest Pam Golding Residential Property Index, there are some interesting trends evident in the marketplace. For example, activity in the price band below R1 million remains very active. While national house price inflation has averaged at 4.25% during the year to date, it lost momentum in recent months – recording an increase of just 3.9% in Q3. In contrast, Cape house price inflation continues to gather momentum and outperform - even as the other major regions show slowing growth in house prices. In addition, the rebound in the Eastern Cape in late-2016 and early-2017 now appears to be losing momentum.
In the luxury market, we have seen a marked increase in the number of super luxury (R10 million to R50 million) properties being sold over the last five years. Regarding luxury properties, which are generally regarded as those selling for R3 million upwards, sales remain steady with some notable PGP sales at the very top end of the market.
These include: In the Boland & Overberg region of the Western Cape, three commercial wine farms each sold for more than R100 million; and numerous sales, including high end residences, lifestyle farms and agricultural farms, priced from R20 million to in excess of R50 million and predominantly on the Cape Atlantic Seaboard in areas such as Clifton, Camps Bay, Fresnaye and Mouille Point as well as Bishopscourt and Constantia in Southern Suburbs, and Knysna on the Garden Route.
Notably, PGP set a new record price for Bedfordview in Johannesburg East, Gauteng with a house sale of R30 million. In Port Elizabeth PGP’s recent sale of a luxury 750sqm home for R16 million set a new record in the city’s residential property market.
We attribute the continued demand for residential property at the top end of the market to a number of trends including a migration of high net worth buyers from north of the country to coastal areas, the investment market also investing in these areas, and thirdly, a small increase in foreign buyers both from Africa and other continents.
In both the super luxury segment and the ultra super luxury segment (R50 million to R100 million), properties are transacted by both local and international buyers, particularly as the global ultra-wealthy seek to diversify their portfolios in property and perceive the excellent value for money offered by South Africa.
In regard to the top end rental market, the Atlantic Seaboard is a perennial favourite and we have achieved rentals of R30 000 per day for a villa in Bakoven and R23 000 per day for a Clifton bungalow. Significant rentals have also been achieved in Constantia, where a villa has been leased for R37 500 per day. Notable monthly rentals in Cape Town’s Southern Suburbs include R163 000 for a home in Bishopscourt and R100 000 for a Constantia property.
While we are speaking about PGP sales, despite the prevailing challenging trading conditions we have had another really good year and for the first seven months (March to September 2017) of our financial year, we achieved sales turnover of R12 billion which is two percent ahead of the previous financial year in rand value, and puts us on track to achieve approximately R20 billion for the financial year ended February 2018.
If we review our sales performance over the past 12 months (October 2016 to September 2017), notably we have significantly increased our sales volumes by 45% in the top end of the market above R50 million, while another stand-out price band was properties priced between R1.5 million and R3 million which increased by 10%, while sales between R3 million and R6 million increased by 1%. Notably, our market share in the +R12 million price bracket is 41% and 28% in the R6 million to R12 million price band.
PGP sales to foreign buyers remain low at only three percent of total group unit sales, with the top countries purchasing being the UK, Germany, Portugal, Belgium, Switzerland, USA, Zimbabwe and the Netherlands.
Looking at the major metropolitan areas, while house price growth in Cape Town appears to be moderating, if we dig deeper, the strength we are seeing in the Western Cape PGP Index could be partly attributable to a reflection of strong growth in prices outside Cape Town. In Johannesburg, prices appear to be stabilising while Pretoria seems to be gaining momentum. Although we see that the Durban metro is slowing sharply – it is important to note that this does not reflect activity on the North Coast – a not-to-be-underestimated and strategic, key growth node.
For some time now the coastal metros of Durban, Port Elizabeth (Nelson Mandela Bay) and Cape Town outperformed the interior metros by a considerable margin (according to Lightstone data). However, this appears to be over – with both Durban and NMB losing momentum. Soon it will only be Cape Town that is outperforming relative to the national average.
However, even as the non-coastal metros slow, coastal property – defined by Lightstone as a home within 500m of the coastline, appears to once again be gathering momentum – in effect widening the coastal premium which in Q3 rose to +2.7% (Lightstone).
New urbanism – growing role of cities and lifestyle trends:
A number of other factors appear to be contributing to the performance of city housing markets, despite the country’s current subdued economic outlook. Increasingly, growth is being driven by cities rather than countries. A couple of major growth nodes are increasingly the engines of growth and are to a large extent, increasingly in the hands of local authorities and private investors.
In Gauteng, areas like Sandton, Rosebank and eastern Pretoria are also experiencing significant private investment in mixed-use developments and public infrastructure expenditure, as are various growth nodes on the KZN North Coast.
Cape Town’s growing international profile suggests that the fortunes of the local economy and housing market may be driven more and more by global factors rather than purely local. According to the 2017 global Alpha Cities Index, which ranks cities on lifestyle appeal for global high net worth individuals, Cape Town was rated 37th and Johannesburg 46th.
Another factor which may determine which metro housing markets are set to outperform the national average and even other metro markets is indicated by recent research by global property giant and Pam Golding Properties’ strategic partner, Savills. This suggests that major global demographic and technological changes are creating the conditions for the emergence of the ‘Fifth Age of Cities’.
According to Savills, the evolution of cities appears to have turned full circle, with the new age of cities looking surprisingly like the first. Global cities appear to be entering an age where the purpose of a successful city is to attract people, not traffic, to facilitate the flow of ideas, not just money, and to nurture human capital, and not just financial capital. As an example, this may help explain to a large extent why housing markets in areas in and around the Cape Town CBD continue to flourish.
In the tech industry, human interaction, chance collaborations and the free exchange of ideas adds significant value. As a consequence, skilled young professionals are moving away from the single use environment of purpose-built, out of town business parks and towards high quality urban environments. Ultimately the city itself becomes the source of attraction for skilled workers rather than the corporate entity. This is especially true in the self-employed world of small start-ups and scale-ups, which form an important component of the tech industry.
PGP Agent Survey
From a recent survey conducted among Pam Golding Properties agents in the various regions, it suggests that the Boland & Overberg region of the Western Cape is experiencing the most stock shortages, and Gauteng the least.
Our survey also reflects that more than half of our properties on the market still sell within three months – with well-priced properties in high demand areas selling within days or a week - and most of our agents anticipate stronger market activity in Q4.
A number of further trends are impacting on the current market:
According to the Pam Golding Properties Residential Review, there has been a notable rise in semigration from July 2011 to date, which continues to increase. As of January 2016, the Western Cape was the destination of choice for 33% of people moving and agents have reported substantial interest from Gauteng buyers. FNB Estate Agent Surveys show that for the two summer quarters of 2016/2017, the City of Cape Town had the lowest percentage of people selling in order to relocate to other parts of the country.
While it is unclear precisely what is driving the coastal outperformance, it could be attributable at least in part to the semigration trend. Semigration remains a key catalyst in house price inflation in the Western Cape and we continue to see people opting to move to Cape Town or estates around the country before considering other alternatives. Many Gauteng buyers are drawn especially to the Overberg and Boland areas, looking for a country lifestyle that is still relatively close to Cape Town. Our agents say many of the Gauteng sales are to buyers wanting a second residence with the intention to settle here in the long term. Furthermore, the rural towns in the vast Karoo which spans several regions continue to hold appeal for their country lifestyle and community engagement, and as an affordable option for retirees.
As Cape Town’s property prices soar, potential home buyers have turned their attention to more affordable options along the entire Cape coastline, including the Garden Route, as well as KwaZulu-Natal. Positively, we have also seen a sharp rise in vacant plot sales in many coastal towns, which may indicate that people want to secure a foothold in coastal markets for when they are ready to downsize or retire. A large proportion of these plots are in estates. More than ever the critical assessment is around position. Sea facing homes or apartments may come at a price but usually retain their value. In estates, the lifestyle proposition is important as well as levies and access to amenities such as health care and airports. KZN has the advantage of having less congestion with several growth nodes in uMhlanga, Ballito and Sibaya. In addition, Durban is gaining momentum with the Point area being a secure lifestyle precinct currently being developed.
Semigration to the Garden Route is a result of good property offerings in price, together with lifestyle living. This has accelerated interest in the region from Knysna and Plettenberg Bay to George and Mossel Bay. The market has remained stable in the Eastern Cape, particularly in the hubs of industry in East London and Port Elizabeth, with the latter in particular developing as a metro of choice under its current management and with Coega gaining traction.
A closer look at the Gauteng property market, however, reveals a much more nuanced picture of the national residential property market, including semigration. The province remains the centre of business and commerce for the southern African sub-continent. It therefore continues to act as a magnet for people from around the country, and indeed the African continent and the world, seeking economic opportunity in the highly competitive Gauteng region, which accounts for under one-quarter of South Africa’s population and generates 35 percent of the nations national economic output*.
The Royal Institution of Chartered Surveyors’ Africa Summit held in Sandton earlier this year discussed the urbanisation of African cities, particularly those of Gauteng, noting that the centres in the region continue to attract more than 300 000 people annually. From this we can see that the picture of migrations within the country is a great deal more complex than just one of semigration to the Cape. A massive migration to Gauteng is also ongoing.
* Taken from South Africa’s global gateway: Profiling the Gauteng City-Region’s international competitiveness and connections by Joseph Parilla and Jesus Leal Trujillo – November 2015
Sectional title vs freehold:
Given that only 12% of SA’s current housing stock of 6.45 million housing units is sectional title and yet demand for sectional title properties is growing rapidly, apartment prices are holding up well relative to freehold property prices.
We are seeing that house price inflation in the sectional title housing segment is still outperforming full title, with the gap between the two widening. According to the Pam Golding Properties Index, the sectional title house price index rose by 5.27% year on year in the third quarter of 2017, while the full title house price index showed a slower 2.95% year on year growth rate in Q3. In addition, with an average of at least 90 000 first-time buyers entering the market each year, it is no surprise that the less than 2 bedroom ie smaller segment of the sectional title market showed the strongest price inflation of 9.3% in the same period, exceeding the growth in prices in 2 and 3-bedroom units. Nationally price growth of small sectional title units (two bedrooms and smaller) is increasing faster than that of freestanding homes, with an inflation of just over 10% this year.
Developers are responding to the growing demand for sectional title properties, with an increasing portion of all building plans passed being for apartments. According to a recent FNB report, this appears to be a longer term trend which may see this sector ultimately become the larger of the two residential market segments some years from now.
Sectional title properties under the transfer duty threshold of R900 000 are extremely popular due to the acquisition costs being palatable to investors. Alternatively, off plan development purchases through a reputable developer where transfer duty is not applicable are also popular with investors.
Sectional title developments close to Gautrain nodes are proving particularly popular and many developments are now offering guaranteed rentals in order to attract investors, for example, One97 in Hyde Park, a small upmarket development offers a guaranteed rental return on some apartments. In Park Central, Rosebank you can pay your deposit in instalments.
In Cape Town, with limited land availability, increasing congestion and rising home ownership costs, there is growing demand for sectional title properties as people are willing to sacrifice space in return for a more convenient location and less of a commute to work.
According to Lightstone, sectional title accounts for 14.8% of the total value (R5 trillion) of South Africa’s residential housing market. Freehold properties comprise 69.7% and estates 15.5% of the total value.
Lightstone has shown that on average, estate properties are more valuable than non-estate properties, and while they tend to track the performance of the luxury market, the prices of homes on estates tend to be less volatile and hence a better investment option during challenging times. While secure estates with golf courses remain popular, there is a shift towards estates offering additional amenities and facilities such as cycling and jogging tracks, play areas, equestrian facilities, outdoor gymnasiums and even crèches and schools, which make them even more popular due to being more inclusive of the entire family’s needs.
At least one in 10 South Africans choose gated communities when making residential property purchases, according to Lightstone. There are currently nearly 7 000 estates with 355 000 active residential properties valued at R800 billion in South Africa. Fourways region, the so-called ‘New North’ has for long been a popular choice among foreign buyers who show a strong preference for homes in upmarket golf and security estates, such as Dainfern, Fourways Gardens and also Steyn City. These offer convenience, a strong sense of community and a secure lifestyle.
Good news for home buyers seeking to build their own dream home in renowned Fancourt on the Garden Route is an opportunity which has arisen to acquire vacant stands and build their own dream home in this highly successful estate. Originally launched in 1991, in 1994 Fancourt was taken over by the Plattners, who have undertaken ongoing investment in the estate. An indication of its popularity is that nearly half the current home owners have owned their properties for 11 or more years. Now, in the first residential release in over a decade a new phase, ‘Noem Noem’, is being brought to market at accessible prices starting from R1.2 million and launching next month (mid-December 2017). This new phase comprises 45 vacant stands ranging in size from ±508msqm to ±1135sqm.
Following on from the above, the demand for well located sectional title apartments with low maintenance and running costs is not limited to first time buyers but has high appeal for those downscaling due to changing lifestyle requirements. Faced with rising costs of rates and utilities as well as security concerns, the appeal of a lock up and go lifestyle, there is a growing trend towards downscaling due to life stage, to smaller but not necessarily less expensive properties.
Pam Golding Properties’ Atlantic Seaboard agents note that the majority of buyers of luxury apartments are older, more affluent residents moving from freehold properties to luxury properties in the same area, attracted by the lifestyle offering of apartment living.
Apart from downsizing or downscaling, multi-generational living or extended family living, with the associated benefits of pooled resources and cost efficiencies, is making increasing economic sense in today’s world, including South Africa. This is becoming evident across regions and in various sectors of the market.
Economic pressures are seeing adult children moving back home as singles or young married couples who occupy a cottage or second dwelling on the parents’ property. Rising costs and a shortage of affordable retirement accommodation, together with a concern for the care of aging parents, is contributing to this trend. As a result some households accommodate up to three family generations.
Mixed-use developments and new residential developments:
We are seeing a rise in mixed-use developments as well as the emergence of mixed-use suburbs. Mixed-use developments, such as Melrose Arch in Johannesburg, feature mainly in key urban growth nodes in metropolitan areas where you can live, work and play. These developments may incorporate residential, retail, leisure and hospitality amenities – even schools and healthcare facilities all in a secure and attractive environment. Another example is Steyn City Lifestyle Resort in Gauteng.
They are growing in popularity for professionals who travel frequently and retirees who travel overseas to visit family, and because of the security provided by such developments. While mixed-use development has historically attracted singles and couples who work in and around the area, but not families with children, this is slowly changing as families with children and/or pets are seeking low maintenance, security and convenience, and as a result the demand for larger three bedroom apartments slowly rising. The 16 on Bree development in Cape Town is including a crèche and recreational facilities and developers of larger multi-phase developments are considering pre-primary schools as well. In Capital on Bath and Capital on Park in Rosebank and Sandton respectively, buyers have the opportunity of investing in a hotel development either to live and make use of numerous amenities on offer or obtain guaranteed rental returns.
Cape Town’s central city and City Bowl has transformed over the last decade or more with residential developments going up next to prime office space. The need for a live, work, play lifestyle has grown in part because of the city’s increased traffic congestion. Instead of spending hours in traffic, people are willing to sacrifice larger plots or gardens to live closer to work opportunities. As the Central City Improvement District notes in its Cape Town Central City Report 2016, densification is becoming evident, giving rise to a vertical city on a commercial and residential front.
The sell-out success of the Yacht Club development near the city’s financial hub, V&A Waterfront and Foreshore, for example, underlines the growing demand for urban living options in the city centre and nearby precincts.
ues double in the past five years. These mixed-use precincts have also led to an evolution of the concept of “estate living” and developments such as Harbour Arch, on Cape Town’s Foreshore, offer residents the safety and security of estate living, with the convenience of living in the heart of the city. This massive new development, will see some 2 000 residential units selling at an average price of R55 000 per square metre, which, when viewed against prices of over R500 000 per square metre in New York, R440 000 in London and R224 000 in Sydney, still represents value for money.
According to New World Wealth, for a 200 to 400sqm apartment in a prime part of the city or town, regarding the average price in US$ per square metre in leading global cities, Monaco tops the list at $48 000, followed by New York $37 000, London $35 000, St Tropez $33 000, St Jean Cap Ferrat $32 000 and Hong Kong $28 000. By comparison in Africa, Clifton and Bantry Bay on the Cape’s Atlantic Seaboard tops the list at $5 800, followed by Grand Baie and Port Louis in Mauritius at $5 000, Sandton in Johannesburg $2 800 and uMhlanga in KZN $2 200.
First time buyers - healthier lending climate:
With about 60% of South African citizens under the age of 35 years and many not yet home owners, first time buyers remain an important source of housing demand. This is confirmed by ooba, whose figures reveal that almost half of all new mortgages are extended to such buyers, while Lightstone estimates more than 90 000 new home owners enter the housing market each year. As young people flock to the major urban areas, metros are becoming both larger and younger. Given limited land availability in these areas and the issue of affordability, sectional title properties are popular among first time buyers. Based on an FNB estate agent survey, the less than two bedroom sub segment of the sectional title market is believed to be a key target for first time buyers, and apart from low first time buyer levels in Cape Town – due to a lack of affordability, the major regions of South Africa still enjoy reasonably strong first time buyer levels.
Buyers in the younger generation of first time buyers are firstly most likely to rent property initially and will seek to reduce municipal costs for services such as electricity and water as much as possible, so their tendency will be towards green, energy saving homes. When buying a home, these same considerations will apply.
There does not seem to have been any major deterioration in access to finance – with the effective approval rating drifting higher (albeit not back at pre-recession levels). The size of average deposit drifted higher between late-2014 and late-2016 but has since stabilised at around 17.5% (see chart below).
According to bond originator ooba, Q3 statistics show an increase of 6.1% on Q3 2016 in first time buyers’ average house purchase price, as the demand for entry level properties picks up in line with the global trend to increased urbanisation. The banks also have a healthier lending appetite than last year with a higher bond approval rate in Q3 of 73.6% and a significantly improved average interest rate of prime plus 0.34%. In addition, approval rates for 100% bond applications have also improved year on year to 71.3%.
Gauteng is also where the most first time buyers purchase property. According to residential property research company Lightstone, half of young buyers over the last 12 years have purchased residential property in Gauteng province. Young people are attracted to the region by the economic opportunity it offers, generally earning better salaries than elsewhere in South Africa. In addition, it should be noted that properties in the Gauteng region are more realistically priced, thereby making homes more accessible.
Numerous new townhouse and apartment developments are currently offering special deals and inducements to potential buyers, which is encouraging younger first-time homebuyers in particular. It should be kept in mind that new properties are also not subject to transfer fees, which can be an added attraction for the first-time buyer.
Interestingly, we have observed instances in which residents of the Western Cape have made their first investment in property in Gauteng while renting a property in Cape Town. They find properties in Gauteng more affordable and may purchase a sectional title property in a centre such as Rosebank for investment purposes and as a means to get into the property market.
This is a growing market because people reaching retirement age – whatever that may be – no longer wish to move into an ‘old age home’ but would rather more into a retirement estate, possibly within a larger estate where they can enjoy all the usual estate amenities as well as medical care. People are living considerably longer, so this is a new market, plus this age category is also leading a far more active life, hence the change in demand for a type of lifestyle. KZN is a prime market for this because the year-round clement weather is ideal, while the Garden Route and Cape’s sought after Atlantic Seaboard are also popular – the latter attracting those who are selling freehold homes to move into convenient lock-up-and-go apartments.
There is a notable shortage of retirement accommodation catering for the older generation as well as those seeking such accommodation for their ageing parents, or those planning ahead by investing in their own retirement accommodation with a view to their future retirement.
According to our PGP Research Department, demand for the new style of retirement living is growing, with the percentage of South Africans over the age of 60 set to double to 15.4% of the total population by 2050. However, the market has not yet provided sufficient housing stock to meet these needs – either in terms of the number of people or the type of lifestyle currently favoured. There is also evidence that many people opt to retire in coastal areas – markets which are already experiencing increased demand from South Africans of all ages who are semigrating to the coastal metros from the inland provinces.
Green – sustainable new- or retro-builds:
The underlying trends in South Africa’s housing market suggest that the transition to ‘green’ will continue to gather momentum. The growing cost of utilities, coupled with load and water shedding, increases the appeal of alternative, greener sources of energy and water but also greater efficiency in homes. The desire for a low maintenance, well located home in a key growth node suggests growing numbers of people living in green precincts and sustainable estates, while the growing densification of cities holds both economic and environmental benefits.
The 2016 World Green Building Trends identified South Africa as a growth engine in green building – with the highest percentage of green building projects currently under way. So far green building has been concentrated in the commercial property sector, but now appears to be transitioning into the residential market and its 6.5 million housing units.
The green trend is gathering momentum in the new-build market with mixed use developments seeing what were initially green buildings transform into green precincts (i.e. public space) Most new mega mixed-use developments are green to some degree. Estates are also increasingly green / sustainable. Here too the effects of the green transition are being felt.
In the USA, golfing estates are losing their appeal. In contrast the new trend is agri-hoods – housing estates with residences built around community farms. Here in South Africa, New World Wealth notes a move away from traditional golf estates and a rise in demand for retirement and eco-estates.
We anticipate that over the next decade we will see a steady increase in demand for properties which protect and promote our natural environment, incorporate green features, reduce operating costs and secure the provision of water and electricity supplies. This demand will drive price premiums for properties that cater to these needs.
In an attempt to monitor the green transition underway in the residential market, PGP has started surveying its agents on a quarterly basis and in September 2017, they revealed that 62% believe that green features result in a price premium being achieved for a home, and have a competitive advantage in the marketplace, adding to its ‘saleability’. The desire for a low maintenance, well located home in a key growth node suggests growing numbers of people living in green precincts and sustainable estates.
As drought-stricken Cape Town becomes accustomed to the “new normal” of limited water usage, agents say they are seeing changes in homeowners’ priorities when it comes to swimming pools and expanses of grass in their gardens. Many are opting to deck their pools, and artificial grass covering is being used.
Rise of investment buyers:
Increasingly South Africans, including first time buyers, are reflecting a growing desire firstly to own their own homes and secondly, to invest in property not only for a sound medium to long term capital investment, but also to secure a steady rental income stream.
Increasingly, residential property is being highlighted as an asset class well worth consideration in order to diversify and balance an investment portfolio - as well as the potential to provide for an additional income stream with the underlying key benefit of providing for appreciation in property value. It is also favoured during times of economic and political uncertainty because it is a real, tangible asset, with the income stream potential particularly welcome.
National hotspots for investor buyers include the Atlantic Seaboard in the Western Cape, which probably tops the list, having generated significant capital growth and rental income growth over the last few years and even recently set a new benchmark price of R200 000 per square metre; uMhlanga in KZN as well as the secure estates along the North Coast; Fourways, which is currently enjoying major investment in infrastructure, retail, commercial and residential development; Rosebank, Sandton and surrounds as well as the Midrand area where a number of investors, in some instances, are enjoying rental returns that cover their monthly costs. There are exceptions however, and in most cases the investor will need to cover a small shortfall for the initial period of the investment.
Key growth nodes include areas such as Century City (Northern Suburbs) and Claremont (Southern Suburbs) in Cape Town; Rosebank and Sandton Gate (green precinct) in Johannesburg; and Pretoria / Menlyn Maine (New North) in Gauteng. Also areas which are well located (along new MyCiti bus routes or Gautrain routes, longer term) which have a strong mixed-use focus or are self-sufficient in the green sense, thereby reducing reliance on utilities which are becoming more expensive.
Buyers choose a growth node that offers them their priorities such as access to school/work or an easy commute. We definitely believe that congestion is starting to impact on people’s home buying decisions, as they are deciding on where to live based on ease of commute to schools and work.
Major investment in Cape Town CBD and Johannesburg’s New North (Fourways) is a serious commitment which suggests massive confidence in the future of these areas. The Western Seaboard has been one of the fastest growing areas in the Cape in the past 15 to 20 years, with the emergence of suburbs such as Century City, Parklands and Sunningdale. The Century City, Royal Ascot and Big Bay developments are in secure environments and are about 80% developed. The resales on these developments are very active and sellers are receiving a good return on their investments. Blouberg is one of the fastest growing residential areas and the construction of the super-regional shopping mall there underlines investor confidence in the area which is estimated to have about 30 000 households.
Hotspot: distance between Johannesburg and Pretoria continues to shrink
Furthermore, the cities of Johannesburg and Pretoria have developed outwards at a rapid pace with many experts suggesting that they will form a single ‘mega-city’ with a population exceeding 10 million by 2030. In addition, centres such as Sandton, Rosebank, Fourways, Midrand, Pretoria East and a number of others are continuing to develop strongly, demonstrating a high degree of confidence from investors.
The growth of these centres tends to have a positive impact on local residential property markets within and around them, often generating a demand for residential properties close by, as residents seek to avoid increasing traffic volumes and reduce transport costs as far as possible by living closer to places of work, schools and other amenities.
Positively 19 new Gautrain stations are planned, which will include Lanseria Airport, Cradle of Humankind and Soweto. In addition, a Gautrain station is on the cards for Fourways, which, based on the experience of Sandton and Rosebank, is only likely to further stimulate the area.
The evolution of the Fourways area over the last decade has been nothing short of staggering and, given the plans that property development giants such as the Accelerate Property Fund have for the region, there is now little doubt that we are seeing the area evolve into a mini-city in the mould of the Sandton city centre.
Another hot spot - student accommodation:
Student accommodation within close proximity to the universities and tertiary institutions is proving increasingly popular, including conversions of houses which are then let out per room, giving investors significantly greater returns compared to a single lease over the property. There is a severe shortage of student housing in South Africa, a trend which is evident in many metros in prime global cities. In mid-2016 there was an estimated 216 000 bed shortage at our universities.
With more than half a million students in Southern Africa expected to need accommodation during their studies within the next five years, according to JLL, an investment management company specialising in real estate, properties near university towns such as Stellenbosch will continue to yield considerable investment opportunities. There were close to 31 000 applications for Stellenbosch University last year, and only about 6 500 spaces in the university’s official residences. A large portion of the remaining 25 000 students therefore had to find their own accommodation close to campus.
Activity in the sectional title market in Stellenbosch Central remains brisk. Premium properties include those located on the designated “Green Route” which is patrolled by campus security for added peace of mind. Flats in central blocks with excellent security, good qual
ity finishes and a mix of tenants – not only students – are highly sought after. Pam Golding Properties recently sold a 77sqm apartment in Andringa Walk for R4.4 million, or R57 000 per sqm.
South Africans reflect an ongoing appetite for investment in global property in order to diversify their portfolios , gaining access to sought after lifestyle options, achieving a rand hedge in times of economic uncertainty – as well as securing the advantage of residence or citizen status and creating international opportunities for their children to study, live and work abroad. Earlier this year we partnered with global investment-migration firm Henley & Partners, to provide buyers seeking international property assets with a view to acquiring dual residence or citizenship, an end-to-end service.
In Eden Island, Seychelles, which is rapidly reaching completion, with the total build due for completion in early 2019, from 2006 to date PGP has sold 535 units to a total value of US$500 million, with only 31 remaining units comprising a mix of apartments, maisons and villas, including four exclusive penthouses. Current prices range from US$455 000 to US$3.3 million and the total sell-out value of homes represents US$550 million. About 38% of buyers are South Africans and Eden Island is home to people from 43 different nationalities. Up to 15% of home owners live there permanently.
In Mauritius, Africa’s fast growing wealth economy, there is a rampant demand for property, underpinned by a growing interest in doing business from the island as a strategic base into Africa. Very importantly for South Africans is that Mauritius offers one of the most affordable permanent residence schemes around – any purchase of property for US$500 000 gets you and your spouse and children under the age of 24 the right to reside full time on the island. We focus on attention on Grand Baie and Black River because that is where the infrastructure is and expats and business professionals want to reside, also making it easily rentable. We have just launched the SAOTA apartments in Grand Baie, with 18 reservations in just one day, of apartments priced from US$385 000.
We were recently appointed to market luxury apartments and villas in the first phase of the groundbreaking Zanzibar Amber Resort, which is a world-class beach, golf and hospitality resort situated on the prime north-eastern coast of Zanzibar, just off the Tanzanian coastline. We will be launching with 46, two to four bedroom luxury villas ranging in price from US$670 000 to US$1.7 million and in addition to this, there will be 13 opportunities for five to six bedroom, super luxury villas starting from US$4 million.
Apart from Spain, and Lisbon in Portugal, hailed of the ‘California of Europe and proving the most popular programme by far - attracting a host of South African and global buyers, our latest exciting offshore opportunities include a range of options in Malta and Cyprus. For a relatively affordable property investment of EUR320 000, successful applicants of the Malta Residence and Visa Programme acquire long-term, unrestricted access to the entire European Schengen area and the right to reside in this the 40th most competitive economy in the world, all within just three months of applying. In Cyprus, for an investment of EUR2 million, you can acquire citizenship in just 4-6 months for you and your entire family up to the age of 28 years, with the opportunity to disinvest after three years by selling your property, but reinvesting EUR500 000.
Finally, in Africa, the second half of the year has seen an improvement in the property market, particularly in Kenya where PGP has a mandate in The Pinnacle in Nairobi, which, with the larger tower being 300m, will be the tallest building in Africa. This is a mix of hospitality, commercial and residential which should find acceptance in the market place as an ideally positioned mixed-use development. We continue to look for opportunities to expand into Africa with sights set on Ghana and Tanzania for opportunities to work with local property entrepreneurs.
Outlook for 2018
Crystal ball gazing is difficult at the best of times but, given the current global and local economic and political backdrop, it will be an unusually fraught exercise in 2018.
Three key trends we believe will gather momentum next year are:
- Growing demand for sectional title properties for both lifestyle and economic reasons within the major growth nodes
- Estate living – reflecting the realisation that it is easier to share facilities without the upkeep and as many estates go off-grid become more appealing. Many estates are including more sectional title properties to meet the demand of those no longer wanting freehold homes
- Steady transition to more energy and water efficient homes as SA retains its global lead in sustainable building.
Much depends on the ANC elective conference in December – with either a business-as-usual outcome which would see the national housing market remain sluggish while activity continues to thrive in the major metros, or it could see a marked rebound in business and consumer confidence. Given that many potential home buyers are currently adopting a wait-and-see attitude, it seems fair to assume that if there is clarity on the political future and a positive outlook, there is likely to be considerable pent-up demand which will emerge – resulting in a marked improvement in the local market. We will be closely monitoring developments in the weeks ahead.
Please login to post comments