Key Influence In South Africa’s Residential Property Market

According to recent research by Pam Golding Properties’ international partners, Savills, the single fundamental driver of residential property demand has always been the number of households in a population wanting a roof over their heads.

The price of those roofs is then a function of the number of properties and the amount of money available with which households can compete for them, PGP chief executive, Dr Andrew Golding, told guests at a recent media event.

“This means that three key factors will make for house price growth in excess of general inflation: growing population, increasing affluence and limited land and housing supply. The research also showed that the absence of one of these variables can stall a housing market and the absence of two or more can send property values downward,” said Dr Golding.

According to the recently released 2014 Development Indicators report, South Africa’s population has risen to just over 54 million and is growing at a pace of approximately 800,000 people each year.

In addition, South Africans are migrating at a rapid pace within the country, resulting in more pronounced population trends within the various provinces and metros. For example, between 1996 and 2014, Gauteng’s population is estimated to have increased by 60% and the Western Cape by 5%. During the same period, the Free State and the Eastern Cape both lost about 20% of their residents.

For those moving to Gauteng and the Western Cape, the major cities are the biggest drawcards – reinforcing the rapid pace of urbanisation in South Africa. Currently, about 64% of the population lives in urban areas, but the United Nations estimates that by 2050 this will rise to nearly 80%.

The search for employment is often the motivation for moving house, South Africa’s urban areas are growing larger and younger. Government estimates that two-thirds of South African youth live in urban areas. The resultant ‘youth bulge’ in the cities is visible when comparing the population pyramid for the country as a whole with the age distribution of people living in major cities like Gauteng and Cape Town.

“According to mortgage originator ooba, the average age of mortgage applicants is 37 and that of first-time buyers is 34. Given that the largest age cohort in both Cape Town and Johannesburg in 2011 (most recent Census data) was people between the ages of 25 and 29 years, it seems likely that both cities will begin to experience strong growth in demand for housing about five years from now, as this ‘youth bulge’ reaches the age of the average first-time house buyer in South Africa,” said Dr Golding.

“We think the first of the three metrics identified is likely to continue to provide a strong underpinning for the local housing market – particularly in the major metro areas, during the decade ahead.”

When it comes to affluence, cities and large towns generate over 80% of South Africa’s economic activity, with major metro areas growing twice as fast as smaller towns and cities. Average incomes in major metros are typically about 40% higher than for the country as a whole, and employment has grown twice as fast as other areas.

As a result, between 1996 and 2012, metros accounted for 75% of all net job creation in South Africa. Further fuelled by access to key transport routes and public transportation, and an increasing demand for convenient, urban living, it is no surprise then that the housing markets in metros typically outperform the national average.

“The growing affluence in metro regions, even as growth in the national economy continues to lose momentum, explains why house price inflation in Cape Town, Johannesburg and Pretoria continues to accelerate as these housing markets benefit from growing populations, a relative shortage of housing and growing affluence.”

“Turning to the question of regional outlook, according to our Property Index, the top performing regional housing market is the Western Cape. Its large services sector is at least partly insulated from the slowdown in China’s commodity-heavy economy. Also, the steady migration from other provinces and the limited number of new housing units completed means that all three metrics for the housing market are influential.”

Golding said that house price inflation in the Western Cape has averaged 8% this year, well above the national average of 5.8%, while house prices in the City of Cape Town continue to register double-digit growth rates – an average of 10.1% in the year to May. Over and above this, the Atlantic seaboard consistently continues to outperform other areas with house price growth of around 25% for the past 12 months.

“Having entered its busiest season, the Cape Town Metro region is experiencing competing offers on certain properties mainly in the price range below R6 million. A further current trend is that sellers are selling their large homes in the southern suburbs to move to the convenient, cosmopolitan lifestyle on the Atlantic seaboard.”

“There is continuing strong demand for Cape Town’s central city property and supply is short, and areas to watch are the Southern Peninsula’s Kalk Bay, Simon’s Town and Noordhoek, as well as trendy Green Point, and the popular Western Seaboard where you can still buy a house for just over R1 million,” said Dr Golding.

This article “Key Influence In South Africa’s Residential Property Market” was issued by Pam Golding Properties –

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