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Economic pressure slowing down Gauteng’s home price growth

19 May 2016

While much has been said regarding the slowing in house price growth in recent months, the residential property market in Gauteng is a highly complex one, with sharp regional and suburban variations, and there are a number of highly positive developments within the region’s property sector. 

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This is according to Rupert Finnemore, recently appointed Gauteng regional head of Pam Golding Properties (PGP), who says there has been a gradual slowing in home price growth in Gauteng since 2013 as households come under increasing economic pressure. Like the rest of South Africa, he says the Gauteng residential property sector has also been impacted by a number of interest rate hikes. This, however, tells only part of the story of the local market, which has remained remarkably robust despite a cooling in sentiment, he says. 

Economic powerhouse 

As is noted in The Study, Pam Golding Properties’ quarterly research report, which incorporates the Pam Golding Properties Residential Property Index, Gauteng remains South Africa’s economic powerhouse, generating as much as a third of economic output and an estimated 10% of the entire continent’s GDP. It also accounts for approximately 34% of the country’s total national housing stock. As such, developments within this market have implications for the entire country. 

Rapid development 

According to the research, Gauteng achieved an average of 4.4% overall growth in house prices in 2015. In this regard, the province was outperformed by both the Western Cape (10.6%) and KwaZulu-Natal (6%) in 2015. 

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What is made clear in the The Study, however, is that there are some extreme differences between the different metros and suburbs within the province, says Finnemore. “Mining and manufacturing towns in Gauteng, for example, have been more severely impacted by the economic downturn, which has in turn had a negative bearing on the house price growth within these areas and skews the picture somewhat.” 

On the other hand, he says centres that are more reliant on service industries rather than mining or manufacturing for growth, such as greater Sandton, Rosebank, Midrand, Soweto, and Pretoria and a number of others, continue to show rapid development and vigorous local residential property markets. 

The study, undertaken by PGP in association with property research group Lightstone, suggests that house price growth within these centres has grown apace with other forms of development: 43.5% for Sandton, 20.3% for Midrand, 104.6% for Soweto, 32% for Centurion and 28.4% for Pretoria. 

According to Finnemore, these figures indicate that the residential property market remains buoyant across a number of areas in Gauteng, and PGP remains optimistic about the long-term outlook of the residential property market in the region. 

Location more important than ever 

“There is no question that in general terms our residential property market once more swung back in favour of the buyer. It is clear, however, that many investors continue to view residential property investment as an effective long-term hedge against inflation and continue to be attracted by the prospect of owning a home.” 

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Finnemore says more than ever, buyers are looking at value and, critically, location to ensure they obtain the best return from their property investment. As a result, he says prime locations in Gauteng remain in demand for buyers and tenants, and in some cases the demand for homes well outstrips supply within these areas. 

Sandton remains the financial and commercial capital of South Africa and is a prime example of a local economy and residential property market that is showing incredible dynamism in the face of the current economic downturn, he says. 

''The greater Sandton area has lost none of its shine, boasting the highest average property prices in Gauteng and among the strongest house price growth nationally in 2015."

The rise of the affordable sector 

The strongest house price growth is being recorded in the more affordable sectors of the residential property market, both in Gauteng and nationally. In this segment of the market, which is defined by Lightstone as properties valued at under R250 000, prices grew by an impressive 28.5% during the first 10 months of 2015. 

Place of opportunity 

According to Finnemore, people from around the country still see Gauteng as a "world of opportunity", offering work and quality educational prospects, and continue to flood into the region. As a result, the urban centres of the province continue to attract migrants from around the country, as well as from the continent. 

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According to a recent UN report, Gauteng’s population rose to 9.4 million, and is projected to grow to 11.5 million, a megacity, by 2020. This influx of people generates an increased demand for accommodation and assists to support the residential property and rental markets, he says. 

“Added to this, we have seen the development of a substantial black middle class, a most welcome trend that has been somewhat stimulated by an increased number of opportunities available within the state sector and improved incomes in recent years.” Finnemore says this has had tremendous benefits, particularly for the middle level of the residential property markets within Pretoria and Johannesburg. 

The influx of migrants, as well as the massive investment in the development in these growth nodes by both the public and private sectors, the former spending billions of rands on infrastructure upgrades, is resulting in the rapid densification of the urban areas of Gauteng, he says. 

There is ongoing demand for properties that are secure and have easy access to places of work, quality schools and retail outlets. This, to a large extent, accounts for the popularity of suburbs around centres such as Johannesburg, Sandton and Rosebank. 

Finnemore says the appetite for homes in estates also continues unabated. According to Lightstone, half of South Africa’s estates are situated within Gauteng, and these properties have an average price more than three times higher than other types of residential property, nationally. This demonstrates the ongoing demand for a secure, community-orientated lifestyle, he says. 

The importance of affordability 

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The Study points out that affordability is becoming an increasingly important issue, and has assisted in generating mounting interest throughout the region in sectional title properties, which are perceived to offer good value. In addition, as property prices near the growth centres and northern suburbs of Johannesburg increase, many buyers have been forced to look further afield to areas such as Midrand. 

“Midrand offers greater affordability for potential buyers and is an easy commute via the Gautrain to both Johannesburg and Pretoria. This has helped to make it one of the fastest growing residential areas in the country, the number of sectional title properties having increased by a massive 550% over the last 15 years.” 

First-time buyers and former townships 

One of the most remarkable areas of growth is in the residential property markets of the former townships. House price inflation rose by 10.7% in the third quarter of last year; almost double the house price inflation rate recorded by the other major metro areas. This is in large part due to the perception that homes in these areas remain relatively affordable. 

First-time buyers represented more than half (53%) of all new mortgages in 2015, according to mortgage originator ooba. The Pam Golding Study suggests that, with a growing population in Gauteng, the first-time buyer market looks set to remain an important part of the residential property market. 

“The increased demand for available land and rapid densification of many Gauteng centres are among the factors that are likely to keep the property markets in the growth areas of the province buoyant into the future. Considerable opportunity remains within the province’s residential property market for the sage investor who is able to take a long-term view.”

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