The residential market may be stronger than it was during the 2008/09 recession, but when affordability becomes one of the key drivers of the current market it is a stark reminder of an economy battling to achieve growth.
A recurring theme in much of what is driving a now-constrained residential market locally, is affordability.
Smaller is selling; sectional title transactions are outpacing freehold; upper-income band properties are taking the biggest price knocks; non-traditional areas are becoming increasingly more attractive than historically popular (but more expensive) areas; and renting down rather than buying down is on the rise.
High-net-worth and upper-income area segments, such as the Atlantic Seaboard, are taking the hardest knock, in some cases selling for around 20% less than list price, according to data from PropStats.
Prices have dropped off far less dramatically in the middle and lower price bands, on average reflecting low single-digit drops, according to PropStats.
Often in a property cycle, explains FNB property sector strategist John Loos, the higher-priced end of the residential market leads the downturn, while the lower-priced areas have “more legs” as a portion of home demand shifts downward to less costly priced areas.
But ultimately, economic stagnation will affect all price segments of the market, even the lower-priced areas later in the cycle, he says.
Sacrificing space for price is on the rise, hence the shift from freehold to sectional title continues.
Sectional title property purchases, which in 2003 accounted for just 8% against freehold’s 90%, rose to 22% in 2018.
The largest percentage of these sold in Gauteng, where the average price of a sectional title property is R805 906, reports Lightstone Property.
In the Eastern Cape that average price is R726 637, while its R940 485 in KwaZulu-Natal and R1.54m in the Western Cape.
Freehold house price inflation remains above sectional titles, however, averaging 4.8% year-to-date against sectional title’s 3.5%.Selling due to financial pressure has risen to 16.3%, the highest since 2013.
The percentage of those selling due to financial pressure that will now rent down rather than buy down has risen sharply to 65.6%, reports FNB.
Semigration has declined, down from 10.02% in the first quarter to 7.27% in the third quarter, according to FNB.
Most worrying is the rising level of emigration, now 8.6% of total selling against a low of 2% in 2013, says FNB.
Where to for capital growth?
House price growth at October 2018 was 3.7%, compared with the 4.3% for the full year of 2017, according to FNB’s November House Price Index.
But the national house price inflation figure does not apply to all areas.
Despite a weak national economy and a severe drought, the Western Cape still leads.
House prices here are growing at an unmatched annual rate of 9%, against KZN’s 4.3% and Gauteng’s 3.2%, according to Lightstone.
Coastal properties continue to register strengthening house price inflation, increasing by 7.9% against non-coastal’s 4.3% for the first half of 2018.
It is a buyer’s market, but buyer demand is also dampened when the rental market is under pressure.
Flat and townhouse rentals continue to outperform house rental inflation (of 3.5%), inflating by 4.7% and 4.8% respectively year-on-year in October, says Loos.
The market downturn is barely discernible in some areas, says Andrew Golding, CEO of Pam Golding Properties (PGP).
There are still pockets of robust activity, particularly in new growth areas like greater Fourways, “mini-cities” such as Waterfall City and Steyn City, mixed-use precincts like Melrose Arch, as well as in “micro-markets” like the Waterfront’s Silo District – a residential node that offers the same security and access to amenities as high-end estates.
Pockets of strength remain in the luxury market.
Cape Town is still the top-performing market and the second-fastest-growing luxury residential property market globally.
Val de Vie, SA’s top residential estate, has experienced total sales of over R1.2bn for the past 12 months, says Golding.
Buyers from the rest of the continent now comprise 20% of all foreign buying, up from 16% in 2013.Mixed-use precincts, or live-work-play areas, are increasingly popular.
Over 96% of apartments in the first phase of Harbour Arch, a new mixed-use foreshore development in Cape Town’s CBD, have already sold and total sales have passed the R1bn mark.
In Waterfall City in Midrand, sales at the 254-unit phase-one launch of residential high-rise development Ellipse netted R420m during the first week of sale in November.
What to expect in 2019
Golding says it is likely to be another challenging year for the housing market.
FNB’s projected house price growth for 2019 is 3.7%.Still, there are flourishing growth nodes around the country; smaller coastal towns are enjoying a revival in fortunes as these affordable “holiday towns” become the spot for primary residences; developments catering to retirement needs are highly sought after; and Lightstone anticipates that growth in sectional title prices will continue.
Taking location, price and consistent demand into consideration, Golding cites first-time homes, retirement units, high-end sectional title units for downsizers and lifestyle changers, and student accommodation as properties to be considered for investment.
Online auction: Pam Golding Properties is partnering with BidX1, the second-largest auction house in Britain and Ireland, to disrupt the local auction space via a multi-jurisdictional digital auction platform.
BidX1, South Africa’s first catalogue of properties for auction, is set for early 2019.
The digital auction platform allows bidders around the world to partake in real-time bidding via a digital device, allowing for greater accessibility to a broad concentration of interested buyers.
Tenant services: SA’s first tenant-centric representative service, Trusted Tenant Services, launched recently.
Representing LSM 8-10 residential tenants paying from R8 000/month, the service provides tenants with full representation in negotiations with landlords.
Landlords also win thanks to the stringent verification process these tenants have to go through and a six-month rental and damage guarantee.
SA’s top 10 estates
The New World Wealth estate ratings annually conduct research on top-end residential estates around the country.
Ratings criteria include location, facilities, activities, security, design and space, and scenery, among others.
The top 10 on the 2018 list (alphabetically) were:
Arabella (Western Cape)
Atlantic Beach (Western Cape)
Blair Atholl (Gauteng)
Fancourt (Western Cape)
Pezula (Western Cape)
Steyn City (Gauteng)
Val de Vie (Western Cape)
Waterfall Equestrian Estate (Gauteng)
Whalerock Ridge (Western Cape)
The emergence of the ‘micro’ and ‘nano’ unit
A trend being seen in cities around the world is the emergence of the “micro” unit.
This, explains Andrew Golding, CEO of Pam Golding Properties, is a living space that is around 20% to 30% smaller than a conventionally sized studio apartment.
In Cape Town’s CBD, a micro unit would be about 35m2 with a monthly rental of between R8 530 and R9 749.
But nano-sized living spaces stretch the concept of the micro unit even further.
In Joburg’s CBD, Jewel City’s tiny yet affordable studio units will be available for rental around October 2019.
Almost half that of what the market is terming micro, these nano-sized 18m2 studio units with private toilet, shower and kitchenette, will rent for around R2 700/month.