All quiet on the home front
‘Middle class’ licking its wounds
WHAT HAPPENED TO the much-punted black diamonds – the now old new-emerging middle class? And how important is this group for property prices to recover? Aside from the odd penthouse sale, the industry is offering very little to write home about. Wasn’t it the emerging middle class that would take South Africa’s property prices to new heights?
Pam Golding sold two penthouses in Melrose Arch, north of Johannesburg, for R25,5m each last week. The affordable housing market can’t keep up with demand, despite 43% of SA’s property stock (by value) already consisting of township and affordable houses. Yet homebuyers in the market for houses priced between R300 000 and R25,5m are missing from the party.
Absa says the middle class is still struggling to get its groove back after the 2003 to 2007 spending spree. Debt is an issue, and indebted households don’t have the confidence to commit to buying a R1m home. “Many middle class households also invested in property when prices were skyrocketing. Now – with higher debt levels – these owners can’t increase the rent for those properties dramatically as tenants will simply move to a cheaper property. That makes it hard to pass higher municipal taxes on to a tenant,” says Absa property analyst, Jacques du Toit. Trying to get out of home ownership has suddenly replaced the 2007 trend of trying to get in at any price.
According to TNS Research – the company that famously coined the term “black diamond” along with the University of Cape Town’s Unilever Institute – black diamonds form part of the very powerful middle class.
Those 3m black diamonds accounted for R237bn in terms of buying power last
The driver behind price increases for houses up to R500 000 is the sheer
volume of demand
year, reports TNS. As far as property is concerned, 79% of black diamonds are homeowners against 83% of the rest of the middle class. But let’s face it, credit debt doesn’t discriminate. And without throwing more impressive percentages at you, believe it when we say the majority of SA’s population’s debt exceeds household income.
“The middle class market is important for churn,” says Richard Gray, of estate agency Harcourts. “It generates activity, as sellers are often selling to buy higher.” Gray says the predominantly middle class areas of west and east of Johannesburg – especially Boskburg and Benoni – are showing a surprising jump in activity for Harcourts.
It’s still the affordable and uber luxury markets supplying the sector with the action. Lightstone’s Residential Mortgage Market Overview for May this year shows the affordable market’s house prices grew by +25% year-on-year, well above the luxury (+5%), high value (+6%) and mid value (+8%) indices. ( Luxury houses are worth more than R1,5m, high value between R750 000 and R1,5m and mid-value between R250 000 and R750 000. Affordable houses are generally worth less than R250 000.) When it comes to sales activity, the luxury and high value segments are clear winners, says Lightstone.
“The sector in the market for houses up to R500 000 is the driver behind price increases, because of the sheer volume of demand,” says Lukesh Govindasamy, FNB’s head of commercial property finance. “But high debt levels and banks’ robust credit scoring systems – which are driven by provisions of the National Credit Act – are limiting the number of people who can qualify for mortgages. For houses between R500 000 and R1,5m there’s much stock in the market and the demand/supply economics aren’t as strong: this sector isn’t driving prices,” says Govindasamy.