Advice and Opinion

The changing face of urbanisation: boosting the demand for real estate across all property sectors

Cape Town.

By Quintin Rossi, CEO of Spear REIT Limited

Way back when, urbanisation was the process in which rural communities grew to form cities or urban centres and, by extension, the growth and expansion of those cities.

Simply put, a particularly prosperous and efficient village attracted the attention of other, less prosperous tribes who then joined the successful settlement. Fast forward several 100 years and the principle remains the same, however, many other factors have come into play, changing the face of urbanisation as we know it.

The two main causes of urbanisation are natural population increase and rural-to-urban migration. These causes are influenced by economic and commercial opportunities, modernisation, industrialisation, employment prospects, changes in the mode of living and ultimately, the promise of a better way of life – all of which continue to boost the demand for the development of, and investment in, the property sector.

Two decades ago, the percentage of South Africans living in urban areas was at 46.6% but according to the Parliamentary Monitoring Group, that figure now sits at a whopping 63%. In the Western Cape alone, almost 90% of the province’s population is urbanised with the majority living in the Cape Metropol area. This elevated rate of urbanisation, particularly in the Western Cape, is driving significant demand for real estate across all sub-sectors.

Urbanisation featured as a key topic at the recently held SA REIT Association Conference in Johannesburg, where Gina Schoeman, MD at CITI Bank South Africa, South African economist, Head of CEEMEA Economics and Head of South Africa Research, gave a well-balanced view on South African macro-economic outlooks.

As can be seen in the graph below, job seekers are gravitating towards Gauteng in search of opportunities and employment but in the case of the Western Cape increased urbanisation is driven by higher LSM groups with stable balance sheets, who are employed and are net economic contributors.  The latter bodes well as these semigrants have disposable income to further drive demand for retail, commercial, and industrial real estate.

Source:  Municipal IQ, Stats SA, Citi Research

Despite Covid-19 and stringent lockdown restrictions, the Western Cape has shown remarkable resilience, and investor and property development interest in the city (and outlying districts) remains steady. Significant capital has been put into new developments, redevelopments, refurbishments, and upgrades, currently under construction and in the pipeline with mixed-use office, retail and residential developments providing much-needed accommodation for the influx of people and businesses looking for the convenience and lifestyle urban living provides.

There are challenges though in keeping up with property demands and filling vacant space timeously. Commercial space is at nearly double the vacancy rate for residential and pivoting these buildings swiftly is hampered by a legislative environment that requires a drawn-out process of building plan approvals and land rights matters together with historical asset valuations that may need to be written down in the books of the owners to make the conversion to residential feasible.

It is also argued that urbanisation is at its peak in South Africa because there is little, or no money left in the rural economic regions. The Western Cape however, which is a little different to the rest of the country, is experiencing the growing phenomenon of ‘zoom towns’. This is most likely due to the resilience of these towns resulting in them being an attractive relocation option, firstly, due to good, local governance and service delivery, secondly, relatively good connectivity infrastructure, the natural beauty of these towns and lastly, people have realised that it is possible to buy a lifestyle.

Lifestyle aside, you can’t top good infrastructure as a motivating factor for the increase in migration numbers to the Western Cape. Local municipalities are well regulated and while there is still much work to be done, there is a proactive approach to investing in and managing existing services, along with a genuine push to create and maintain sustainable frameworks to support the economy, the people and the built environment.

The establishment of new residential, retail and tertiary education nodes along the West Coast in towns such as Malmesbury, and in suburbs north of Cape Town such as Fisantekraal, Paarl and Wellington fuelled by semigration are also contributing factors. The overall quality of province-wide infrastructure makes doing business and the operation thereof possible from Cape Town all the way to George, and every town in between.

Deon van Zyl, Chairman of the Western Cape Property Development Forum (WCPDF) concurs saying that over and above good governance, the Western Cape is showing astute political leadership and local Government understands the importance of the role of both provincial and local Government in the economy. “Good governance means good political leadership, good administration and therefore predictability to the private investment sector“.   

This approach bodes well for the future especially with urbanisation projected to rise to 71% by 2030, and by 2050, eight in ten people will be living in urban areas, increasing the demand for property, and improved infrastructure.