Residential property transfers have been treading water at around 350 000 transactions a year since the market fell sharply during the financial crisis of 2008 – although the value of transfers has been recovering briskly, pulled along by an overweighting of transactions in the mid to higher end of the market.
Hayley Ivins-Downes, Head of Digital at Lightstone Property, a provider of property and automotive data and solutions, said at the “Gearing for Growth” Real Estate Industry Summit (REIS) in Sandton recently that Lightstone’s house price inflation forecast for 2022 was 3.0%.
“We see a High Road scenario of 3.6% and a Low Road scenario of 2.6%. South Africa’s annual inflation rate is around 4.55%”.
She said there were 6.9 million residential properties registered at the Deeds Office, valued at R6tn. Freehold made up 80.7% of the volume but 64.9% of value, Sectional Title 12.2% of volume and 15.1% of value while Estates accounted for 7.1% of volume but 20.1% of value. Around a third of the 6.9 million properties were bonded, although the value of bonded properties touched 49%.
Interestingly, the transaction value of sales had been rising sharply in the years 2001 to 2007 before it fell off, but its recovery had been sustained while transaction volumes remained static.
Ivins-Downes said the data suggested there was massive potential for increased activity if the political and economic conditions were favourable. “The historically low-interest rates in 2021 provided a glimpse of what could happen, where we saw bigger gain in higher valued bonds and properties and the average value of property transacting last year shot up to over R1 million, with transaction volumes weighted towards the higher end of the market”.
Homes valued at more than R1.5m accounted for 17% of the volume of properties but 53% of the value, while homes valued at less than R250k make up 25% of volumes but just 4% of value. Homes valued at between R250k to R1.5m make up 45% of the market volume and 33% of the value.
Gauteng, the Western Cape and KwaZulu-Natal remained South Africa’s powerhouse provinces with close to 66% of the volume of properties and 80% of the value of the market.
Focusing on the years 2018 and onwards, Ivins-Downes pointed out both value and volume were performing disappointingly prior to the drop in 2020 as Covid-19 lockdowns took effect, although the recovery, particularly in terms of volumes, was encouraging.
Ivins-Downes said that typically, in this period, around 50% of transactions were bonded and this increased to over 60% in 2020 and settled at 60% during the last year, although it had come off in early 2022.
“The sweet spot for banking products appears to be in the High value and Luxury segments, although there is still relatively low bond penetration in the low-end affordable market.
Looking ahead
The Low value / affordable market was performing well, although its growth rate had dropped below 10%. However, Ivins-Downes said the Luxury market was a concern as it was tracking downwards, and it typically was a leading indicator for what to expect with house price growth in the High and Mid value segments.
In terms of provincial performance, there had been momentum in the Northern Cape, Mpumalanga and Eastern Cape, while the Western Cape had cooled after appearing to be on a charge.
Urbanisation and semigration are key market trends
As expected, urbanisation remained a key market trend, fuelled recently by Covid-19 and an accelerated search employment as tougher economic conditions took their toll. There was significant population growth in Gauteng, Cape Town and along the Garden Route in the Western Cape, and in Durban and along the Kwa-Zulu coastline. There has also been noticeable movement to cities in the Eastern Cape.
While knowledge workers may remain spread out among smaller towns, lower income workers would continue to move into the cities.
Ivins-Downes said (see graph above) SA had seen steep population increases in the provinces with large cities with the estimated number of households in Gauteng growing from 4 million to 5 million, KwaZulu-Natal growing to just under 3 million and Western Cape closing in on 2 million households.
“In Gauteng, the proportion of households earning R11k per month or less went up to 56% and in KZN up to 73%, confirming most of the population growth happens in the lower income segment. While the lower income band also grew in the Western Cape, we’ve also seen the proportion of households with an estimated income higher than R85k increase from 6% to 8%”.
Ivin-Downes said there was a substantial increase in people moving out of Gauteng. “We saw an increase from 39% in 2020 and 2019 to 43% as at end September 2021, with the potential to increase further by year-end. Conversely, movement to the Western Cape in 2021 was up to 35% from 31%, while the other provinces are relatively static”, she said
Covid-19 and “crime-and-grime” were among the key reasons behind semigration in recent years, and the graph below suggests that those moving were typically opting for smaller towns, and this was most evident in 2021.
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