Trends and outlook on South Africa's property market
By Lebohang Nthongoa, on interviewing Dieter Deppisch
The performance of the property market in South Africa has been on a rollercoaster ride along with that of the rest of the world, 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.
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. 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 down scaling 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 3% whereas the total value of these sales increased by 3%.
Cash-buying 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 35% of full title houses and 43% 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. Tepid growth in sales is expected to continue in the medium term due in part to the lack of saving ability of South African consumers.
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%.
In conclusion, 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.
We believe 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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