Bill Rawson, Chairman of the Rawson Property Group, has drawn attention to what he describes as an ‘excellent’ summary of the South African residential property market recently compiled by Joan Muller of the Financial Mail.
This review, says Rawson, contains all the relevant data and gives support to a recent statement that a great many areas throughout the country always will and continue to buck the slow growth trend producing good growth figures – many appreciating in the recent years of ± 10% per annum.
The Muller survey starts with a raft of discouraging data, which it goes on to show are by no means typical of the market as a whole. Among the more discouraging facts initially quoted are:
By the third quarter of 2009, monthly house sales were down from over 30,000 at the peak of the boom, to a record low of 14,000. Recently they have averaged only 17,700 per month.
On average banks today require 18% cash deposits from buyers (a figure released recently by the bond originators OOBA), but despite this fact, said Rawson, the majority of potential less affluent buyers still require 100% loans.
ABSA figures show that house growth was at ± 7% in 2010, but dropped to ± 2% in 2011 and this year stands at only 1,3%.
Most property economists now expect house price growth to remain in single digits for the foreseeable future. The respected property analyst Erwin Rode is predicting 2% or less growth for at least five years.
Although interest rates are at an all-time 31 year low, borrowers very seldom qualify for prime-minus rates and it is more than possible that prime plus 2% or 2,5% will be the norm in the next two to three years.
Smaller profits on home sales, particularly at the upper end of the market, are dampening the upgrading process, making it necessary to stay longer in homes (usually over eight years). This trend is especially noticeable in the top half of the market, where the upgrading syndrome is now far less frequently encountered.
Those are the negative factors quoted by the Muller Report. However, on the positive side Muller, drawing primarily on Lightstone figures, said that many areas have shown excellent growth. Cape Town house prices, in particular, said Muller, have generally risen at a faster rate than those of Johannesburg, Pretoria or Durban and this is corroborated by FNB economist, John Loos, who has also reported that Cape Town is the top performing area in South Africa. The upward trend here (and elsewhere), said Muller, is often related to the number of homes coming on stream in gated estates, this figure having increased exponentially in the last ten years. This trend, she believes, is set to continue, with buyers increasingly prepared to spend 25 to 35% more per square metre for the same size house, provided it is in a security area.
This being the case, it should come as no surprise to find that Sunset Links Golf Estate, sited between Milnerton and Table View, is listed by Muller as Cape Town’s top performing precinct, with a three to five year growth rates of over 36%. Sunset Links is followed by Clifton, with growths of 21,3% to 23,8% over five years, while in the less affluent areas: Gordon Heights, Klipdam, Pinehurst, Arauna and Monte Vista have all achieved growths of 26% to 35% over five years.
Similarly in Johannesburg, golf and gated estates have seen the fastest growth rates, with Eagle Canyon Golf Estate at Honeydew, Dainfern near Fourways and Kyalami Estate being the top performers, all showing growths of over 20% over five years.
Other Johannesburg top performers have been the traditional, established suburbs of Parktown North and Saxonwold; and in the middle income category Wendywood and Glenhazel rank as top performers. Surprisingly, too, Sophiatown is now listed as one of South Africa’s top performers in the R700,000 to R1,5 million bracket.
Certain areas in Pretoria also show the same ability to buck the trend, with gated estates again leading the way: Southdowns Residential Estate and Woodhills Estate and Country Club are now both achieving over 9% annual increases (Southdowns Residential Estate in fact is at 10,5%). Over a five year period Southdowns Residential Estate values have risen by 27,8% and Woodhills Estate by 26,5%. These figures are more or less matched by Tamara Park, Kwaggasrand and Wingate Park.
In Durban, too, five year price growth of over 20% has been achieved in a great many areas, e.g. Newlands East, La Mercy, Crestholme, Virginia and Harwood Park, while traditional areas such as Kloof and Westville are holding their own against the inflation rate. In general, Durban prices have not risen as strongly as other major cities.
Rawson said that the Muller review should give property investors considerable encouragement because the upward trends in the better performing areas are likely to ‘percolate’ through to the slower performing areas.