IN­VEST­ING IN RES­I­DEN­TIAL PROP­ERTY

Apart from buy­ing a home, in­vest­ment into bricks-and-mor­tar res­i­den­tial prop­erty of­fers SA’s lo­cals a means of grow­ing their wealth port­fo­lios. Or does it?

Finweek English Edition - - Cover Story -

the res­i­den­tial prop­erty mar­ket re­mains a mostly re­silient one de­spite the coun­try’s eco­nomic and po­lit­i­cal chal­lenges. But un­sur­pris­ingly, con­sumer sen­ti­ment is sub­dued and that is im­pact­ing the per­for­mance of the res­i­den­tial mar­ket.

Ac­cord­ing to Absa, prop­er­ties are stay­ing on the mar­ket longer. The cur­rent av­er­age is 15 weeks against 11 weeks in 2016. Ask­ing prices are drop­ping, with Absa cit­ing 92% of houses sell­ing be­low ask­ing price com­pared to 88% in 2016. Home loan ap­pli­ca­tions are down 1%.

Yet 74% of those sur­veyed in the bank’s Home­owner Sen­ti­ment In­dex are still pos­i­tive about the South African res­i­den­tial prop­erty mar­ket.

“The ma­jor­ity of con­sumers, three­quar­ters of them, still be­lieve it is bet­ter to buy than rent,” says Carel Grönum, Absa home loans man­ag­ing ex­ec­u­tive.

Sig­nif­i­cantly, 78% ex­pressed pos­i­tive sen­ti­ment about prop­erty as an in­vest­ment.

“As a ve­hi­cle for creat­ing wealth, in­vest­ing in res­i­den­tial prop­erty is still a good op­tion,” Grönum tells fin­week.

And the re­cent in­ter­est rate cut of 0.25 per­cent­age points is en­cour­ag­ing news for those hop­ing to step onto the prop­erty lad­der.

Wealth cre­ation

For the or­di­nary per­son in the street, grow­ing wealth is in­trin­si­cally linked to grow­ing eq­uity in the largest in­vest­ment they are likely to make – their home.

A well-cho­sen prop­erty is al­most cer­tainly likely to ap­pre­ci­ate in value over time. Un­der­pin­ning house price growth is lo­ca­tion, sup­ply and de­mand. Add to this the eco­nomic and po­lit­i­cal head­winds that in­flu­ence the amount of eq­uity home­own­ers can re­alise from their homes.

Yet sub­dued na­tional house price growth of 3%, fur­ther im­pacted by in­fla­tion of 5.3%, paints a some­what som­bre pic­ture. Or does it?

Turns out there’s rea­son for some op­ti­mism. Statis­tics re­veal that cap­i­tal growth is still very much achiev­able… in some ar­eas.

The West­ern Cape con­tin­ues to make head­line news, out­per­form­ing the rest of the coun­try with 8.6% house price growth, re­ports Stan­dard Bank. Cape Town still tops the list of met­ros with the high­est year-onyear house price growth, reg­is­ter­ing 13.8% for the sec­ond quar­ter of 2017, says FNB.

An­drew van der Hoven, head of home loans at Stan­dard Bank, tells fin­week: “Af­flu­ent buy­ers are still driv­ing growth in coastal ar­eas with cash transactions now ac­count­ing for around 54% of deals in the West­ern Cape.”

The coun­try’s two most ex­pen­sive mar­kets, the

At­lantic Seaboard and City

Bowl, re­main the strong­est per­form­ing re­gions in the sec­ond quar­ter of 2017, the for­mer reg­is­ter­ing 29.9% year-on-year growth and the lat­ter 21.1%, re­ports FNB.

Ac­cord­ing to a Se­eff study, Cape Town is now home to nine of the 10 rich­est sub­urbs in SA. Clifton tops the list with an av­er­age sell­ing price of R23m. Sand­hurst in Gaut­eng is the only sub­urb out­side of Cape Town to make the list, com­ing in fourth with an av­er­age sell­ing price of R16.5m.

Mil­len­ni­als too are mak­ing their mark along the At­lantic Seaboard and City Bowl. Three An­chor Bay, with its av­er­age price now R3.2m (up from R1.5m in 2012), tops the list of pop­u­lar mil­len­nial sub­urbs on the At­lantic Seaboard with 31%, says Se­eff.

While KwaZulu-Natal’s house prices have not re­ally been able to beat in­fla­tion, the story is some­what dif­fer­ent along the North Coast where, ac­cord­ing to Light­stone, the me­dian price of prop­er­ties in the last five years has in­creased by 48% in Umh­langa and 32% in Bal­lito.

“Sem­i­gra­tion” of pre­dom­i­nantly Gaut­eng buy­ers has been a big driver of de­mand for prop­erty in the West­ern Cape and the trend has also taken root along KZN’s North Coast. Ac­cord­ing to Pam Gold­ing Prop­er­ties (PGP), some 60% to 70% of buy­ers in the up­mar­ket Zim­bali area come from Gaut­eng.

Res­i­den­tial prop­erty around eco­nomic hubs, those close to Gau­train stations and in ar­eas ben­e­fit­ting from in­fra­struc­ture and in­vestor devel­op­ment con­tinue to profit from de­mand and con­comi­tant house price growth. So too homes in es­tates, the in­creas­ing de­mand for these homes ev­i­denced by on­go­ing devel­op­ment of es­tates around the coun­try. Take In­vestec Prop­erty’s devel­op­ment The Neigh­bour­hood in Links­field, Gaut­eng, where all 184 stands in Phase 1 are ei­ther sold or re­served.

But house price growth, while im­por­tant for wealth cre­ation, im­pacts af­ford­abil­ity.

Rose­bank’s pop­u­lar­ity is rub­bing off on sur­round­ing neigh­bour­hoods like West­cliff where this gra­cious free­hold home has a ticket price of R19m.

Carel Grönum

Man­ag­ing ex­ec­u­tive at Absa Home Loans

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