Property market in SA is booming

Despite a current rather gloomy economic environment, the residential housing sector has been in surprisingly positive territory.

The interpretation of this somewhat surprising trend is that housing demand continues to outstrip supply.

And like many other parts of the world, the housing shortage in South Africa, generally speaking, is on a significant scale in virtually all segments of the market. Taking into account affordability concerns and constraints, that demand continues to fuel price appreciation and new stock supply.

Since the middle of 2012 we started to see a trend of, firstly, nominal house price growth, and then above inflation house price growth across many segments of the South African residential property market.

Three notable outperformers stand out: the lower end of the residential property market, the sectional title market and the major metropolitan areas.

Contributing to the high demand in the lower end of the market is South Africa’s largely young population, with growing numbers of aspiring first-time buyers. This is one of the factors impacting the surge in house price inflation in the townships, which according to FNBs latest property barometer rose in the second quarter of 2015 by 17% from year earlier levels.

The sectional title market continues to outperform, with the gap in price inflation particularly visible between the two extremes of large freehold property with four plus bedrooms, and the smallest category of sectional title with under two bedrooms.

According to FNB, a comparison reveals that in 2014 on average the smallest category of sectional title property increased by 8.8%, while large freehold property prices grew by 5.6% on average. For the first half of 2015 the gap between these two widened further to 10.4% for small sectional title property compared with 5.4% for large freehold.

This trend may be due to lifestyle choice and affordability issues, but is perhaps also indicative of the young profile of our population. However, this needs to be viewed against the overall freehold versus sectional title market, which in 2014 saw the former outperform with an average price increase of 6.3% while sectional title averaged 5.6%.

In a prevailing trend in recent years the major metro areas continue to outperform, with Cape Town currently the strongest (approximately 9.6% in May 2015, according to the latest statistics from Lightstone), but beginning to lose some momentum.

Johannesburg (6.8% in May) and Tshwane (8% in May) both continue to gather impetus, even as the national house price index is on a very gradual slowdown (5.3% in August).

A net influx of people to Cape Town and Johannesburg has resulted in an increased demand for housing, which has been reflected in these two markets gaining market share in terms of their portion of total value of the South African residential market.

Currently, while the market appears to be becoming a bit more challenging generally and while house price growth appears to be softening, our prognosis for the balance of this year and into the first half of next year is a continuation of the current market conditions.

These are characterised by a shortage of stock, banks competing with each other for mortgage customers and buyers frequently competing with each other for the same property, coupled with an ongoing strong rental market.