Resilient SA property market weathers the storms of economic uncertainty
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.