Re­silient SA prop­erty mar­ket weathers the storms of eco­nomic un­cer­tainty

Weekend Argus (Saturday Edition) - - PROPERTY - SAT­UR­DAY

DE­SPITE a lo­cal and global eco­nomic land­scape char­ac­terised by un­usu­ally high lev­els of eco­nomic and po­lit­i­cal un­cer­tainty, the South African prop­erty mar­ket re­mains re­mark­ably re­silient, ac­cord­ing to the Win­ter 2016 is­sue of “The Study”, a re­port which in­cor­po­rates the Pam Gold­ing Res­i­den­tial Prop­erty In­dex.

Pub­lished by Pam Gold­ing Prop­er­ties Re­search, “The Study” pro­vides in­sights into the dy­nam­ics of the res­i­den­tial prop­erty mar­ket.

The re­port says in part this re­silience re­flects pock­ets of strength in the na­tional hous­ing mar­ket, such as the boom­ing West­ern Cape mar­ket, but it is also at­trib­ut­able to the struc­tural un­der­pin­ning of a young pop­u­la­tion and the grow­ing in­flu­ence of first-time buy­ers. As a re­sult, prop­erty can pro­vide an ex­cel­lent in­vest­ment op­por­tu­nity dur­ing un­cer­tain times.

Dr An­drew Gold­ing, chief ex­ec­u­tive of the Pam Gold­ing Prop­erty group, says the con­tin­ued re­silience of the SA hous­ing mar­ket in 2016 has sup­ported a better than ex­pected mar­ket per­for­mance, given that it is oc­cur­ring against a back­ground of per­sis­tently weak eco­nomic growth and a slow, but steady in­crease in in­ter­est rates.

After av­er­ag­ing at a 6.4 per­cent in­crease dur­ing the first quar­ter, the Pam Gold­ing Res­i­den­tial Prop­erty In­dex re­veals that na­tional house price in­fla­tion con­tin­ued to strengthen, ris­ing by 6.7 per­cent in May from prior year lev­els.

In part, the con­tin­ued rise in na­tional house price in­fla­tion may be at­trib­ut­able to the resur­gence in gen­eral con­sumer in­fla­tion in re­cent months, with an av­er­age in­fla­tion rate of 6.7 per­cent fore­cast for 2016 – up from 4.6 per­cent last year. This has re­sulted in re­newed price pres­sures through­out the econ­omy, in­clud­ing the hous­ing mar­ket.

Says Gold­ing: “It seems the strength of the na­tional hous­ing mar­ket is largely at­trib­ut­able to two dom­i­nant trends – the con­tin­ued, ro­bust per­for­mance of the West­ern Cape mar­ket rel­a­tive to the na­tional mar­ket and the ro­bust growth in the prices of homes in the lower in­come price band.

“No­tably, the con­tin­ued move­ment of South Africans to the West­ern Cape is bol­ster­ing the hous­ing mar­ket in the Cape Town metro and in coastal towns from the West Coast through to the Gar­den Route, as well as in Wineland areas such as Stel­len­bosch, Som­er­set West and Paarl, re­sult­ing in a marked in­crease in ac­tiv­ity in hous­ing mar­kets.

For in­vestors, part-time res­i­dents, mi­grants and re­tired peo­ple, the Cape of­fers an ar­ray of apartments at var­i­ous prices and lev­els of lux­ury.

The study says the in­flux of South Africans to the West­ern Cape, cou­pled with the ro­bust growth ex­pe­ri­enced along the KwaZulu-Natal North Coast in re­cent years and the more re­cent re­vival of buyer de­mand for the lower KZN South Coast, may also help to ex­plain why the price of coastal prop­er­ties, which nor­mally un­der­per­form dur­ing pe­ri­ods of weak eco­nomic growth, re­main un­ex­pect­edly re­silient, re­tain­ing a small pre­mium in price growth over non- coastal prop­er­ties since late 2014.

Another in­ter­est­ing trend is the sus­tained good per­for­mance of sec­tional ti­tle prop­er­ties, re­sult­ing from a grow­ing num­ber of first-time home­own­ers and an in­creased fo­cus on af­ford­abil­ity and con­ve­nience. The move to metro areas to re­duce com­mut­ing times and the in­creas­ing num­ber of af­flu­ent home­own­ers opt­ing for lux­ury apart­ment liv­ing and re­newed in­ter­est in prop­erty among in­vestors also ap­pear to be re­in­forc­ing this trend.

“Take, for ex­am­ple, the con­tin­ued strong growth in house price in­fla­tion for small sec­tional ti­tle prop­er­ties with fewer than two bed­rooms, which ac­cord­ing to FNB data rose by 15.2 per­cent in the first quar­ter of 2016 – com­pared to the marked slow­down in house price in­fla­tion for large free­hold prop­er­ties with four or more bed­rooms, which regis­tered an in­crease of just 3.5 per­cent from year ear­lier lev­els in the first quar­ter,” says San­dra Gor­don, head of Pam Gold­ing Prop­er­ties Re­search.

In re­cent months, there has been a marked in­crease in off­plan sales of newly-launched lux­ury apart­ment de­vel­op­ments in areas like Mel­rose, uMh­langa and the At­lantic seaboard.

Af­ford­abil­ity re­mains a crit­i­cal is­sue in a weak econ­omy, and at a na­tional and re­gional level the lower price band below R1 mil­lion con­tin­ues to reg­is­ter the strong­est growth in house price in­fla­tion.

At a na­tional level, this cat­e­gory regis­tered an av­er­age in­fla­tion rate of 9.4 per­cent dur­ing the first five months of the year, with re­gional av­er­ages rang­ing from 16.8 per­cent in the West­ern Cape to 8 per­cent in Gaut­eng.

The out­stand­ing per­for­mance of this seg­ment of the hous­ing mar­ket is at­trib­ut­able in part to SA’s rel­a­tively young pop­u­la­tion. Ac­cord­ing to bond orig­i­na­tor ooba, the av­er­age age of first-time prop­erty buy­ers in SA is 34, and the av­er­age pur­chase price for first-time buy­ers was R813 000 dur­ing the first five months of the year.

Gold­ing says: “Not sur­pris­ingly, prop­erty re­mains a pop­u­lar in­vest­ment as­set for South Africans. Dur­ing pe­ri­ods of eco­nomic un­cer­tainty and fi­nan­cial mar­ket volatil­ity, peo­ple usu­ally be­come more cau­tious about their in­vest­ments, of­ten turn­ing to more sta­ble as­sets like bricks and mor­tar. Re­search shows that a wells­e­lected prop­erty can out­per­form in­fla­tion and gen­er­ate a better re­turn than equities.

“For ex­am­ple, from 2010 to 2015, the price of sec­tional ti­tle prop­er­ties in Mouille Point rose by 79.4 per­cent with a me­dian price of R3.07m in 2015, com­fort­ably ex­ceed­ing the 30 per­cent in­crease in the con­sumer price in­dex and the nearly 60 per­cent rise in the FTSE/JSE Top 40 In­dex dur­ing the same pe­riod.

“En­cour­ag­ingly, this out­stand­ing per­for­mance is not lim­ited to the pres­ti­gious At­lantic seaboard – the price of free­hold prop­erty in Soweto in­creased by 87.4 per­cent – with a me­dian price of R371 000 in 2015 – dur­ing the same five-year pe­riod,” says Gold­ing.

Aerial view of Cape Town where the hous­ing mar­ket is boom­ing.

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