All quiet on the home front

‘Mid­dle class’ lick­ing its wounds

Finweek English Edition - - MONEY CLINIC - LEANI WES­SELS leaniw@fin­

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.


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