FEATURE ARTICLE
accelerate the mobilisation of this key segment of the market to ensure its continued growth.” She adds that it’ s a good sign that the government has recently prioritising social housing delivery, setting a medium-term target of 27,000 units.“ This represents a step change,” she comments.
The buy-to-let market is still very popular with property investors. Johette Smuts, the head of data and analytics at Pay- Prop, predicts that South African tenants and consumers will remain under pressure in the year ahead:“ We expect a continued migration from the lower rental brackets to the higher ones as rents continue to increase, but rentals between R2,500 and R7,500 should stay in high demand.” PayProp’ s latest Rental Index reveals that tenants in these bands spend a lower percentage of their income on rent than those in higher bands. According to Smuts, renters in the higher brackets( especially those between R7,500 and R10,000) might be in trouble in the year ahead, if income levels continue to stagnate. She adds:“ We expect that disposable income levels will remain under pressure – largely due to low job creation and possible tax increases in the near future.”
Supply and demand
The age-old mantra of“ location, location, location” once again comes into play. Areas showing high demand will invariably offer a better investment opportunity. According to PayProp data, rental prices and growth rate in the Western Cape- especially in and around Cape Town- aren ' t as susceptible to struggling economic factors.“ With the ever-present threat of Airbnb-type short-term letting – which is turning out to be very profitable for owners – there is short supply in long-term rental stock, which in turn means higher rent levels and bigger rental increases.“ Semigration” to the region from other parts of the country also puts pressure on house prices and rent levels there, and this is unlikely to change in 2018,” comments Smuts.
While this is good news for the Cape Town property owners, it spells bad news for those looking to get a foot in the door:“ Fuelled by real demand, we predict that Cape Town will continue to see positive house price growth in 2018. While the very steep upward curve we are currently seeing may flatten marginally, Cape Town will remain a lucrative investment destination from both a capital growth and rental income perspective as the current growth is not a bubble,” says Adrian Goslett, CEO of RE / MAX Southern Africa.
Bill Rawson, Chairman of the Rawson Property Group, highlights the importance of getting onto the property ladder sooner rather than later.“ A solid first investment forms the foundation – and often financing – for subsequent purchases. That makes it extremely important to do your research well before settling on a property,” he explains. FNB’ s House Price Indices shows that smaller properties consistently show higher appreciation that their medium. and large counterparts. For this reason, sectional title properties are increasingly popular with investors- young and old. Rawson highlights that oneand two-bedroomed apartments in particular make excellent investments. He echoes the importance of choosing your area carefully:“ Aim for a neighbourhood that is either just starting to show promise, or buy into an exciting rental hotspot. The former offers potentially higher capital appreciation, but the latter might provide better immediate rental returns.”
John Loos, Household and Property Sector Strategist at FNB Home Loans, reports that the estimated average firsttime home buyer level seems to have stabilised in 2017, after two years of decline. He comments that Gauteng, in particular, has shown a strong first-time buyer rate:“ This reflects the region’ s superior home affordability levels compared to other major metropolitan regions,” he explains. According to Loos, Greater Johannesburg saw an increased average first-time buyer percentage, from 21.6 % in 2016, to 25.9 % in 2017. In the same period, the Tshwane region went from 23.75 % to 26.7 %. Gauteng has had low house price growth in recent years, adding to the region’ s affordability.
The coastal regions, however, paint a less optimistic picture for first time homebuyers. Nelson Mandela Bay saw declines from 19.6 % in 2016 to 17 % in 2017. Ethekwini went from 20.5 % to 14.7 %. Unsurprisingly, Loos says, the most severe decline in first-time home buying levels took place in the City of Cape Town. The region has been below the national average for nine consecutive years, but has diverged more sharply since 2016. In 2016, it fell sharply from 18.39 % in 2015 to 12.8. In 2016, it fell to only 7.5 %. Loos predicts that, due to this extreme disparity between the top-performing and lowest-performing regions, Gauteng will emerge as the relative outperformer in the residential market for the year ahead.
According to the latest Lightstone data, there is a clear trend towards properties in the lower-price group outperforming other categories.
Over the last year, the top-performing suburbs, based on inflation, have all fallen into this class. Over in Cape Town, the performers were primarily situated in the city. Diepriver has shown growth of 37.7 %, Woodstock 22,8 %, Observatory 21.1 %, and Schotschekloof 20.8 %. In the northern suburbs, Eden Park in Brackenfell showed impressive growth of 19.8 %.
The City of Johannesburg shows less dramatic inflation, with the top-performer being Northgate at 14.1 %. Savoy Estate shows inflation of 12.9 %, while Cresta shows 11.6 %. In Tshwane, Rietondale and Meyerspark both showed inflation of 12.6 %, while Rietvalleirand sits at 11.4 %. Ethekwini Municipality showed strong growth, with Mount Vernon in Durban coming in at 20.4 %. Cowies Hill Park, Pinetown, shows inflation of 18.4 %, while North Beach grew by 13.5 %.
When looking at inflation over the last five years, those comments about affordability and first-time investor’ s struggle to get into the Cape Town market is clear: Zonnebloem has shown inflation of 138.3 %, Glen Marine of 135.3 %, Lakeside 130.8 %, Dieprivier 118.4 %, and Schotschekloof 107 %. In New Dawn Park in Durban, inflation over the past five years sits at 111.8 %, while Cowies Hill Park is at 64 %. The top-performer in Gauteng was Barbeque Downs in Midrand, with 85.7 %.
According to FNB’ s data, the real( after inflation) house price inflation since December 2000 is 65.5 %.
With property prices seemingly primed to rise, Rudi Botha, CEO of BetterBond, explains the importance of putting money into your bond:“ According to the latest statistics from BetterBond, the average home price is currently R1,13m and the average deposit 20 %, putting the average monthly bond repayment on a 20-year loan granted at the prime interest rate of 10,25 % at just under R8900 a month. However, thanks to the way compound interest works, the homebuyer who pays only the minimum amount each month will pay almost R1,3m in interest over the course of the loan – or more than the original cost of the property.” He explains that, if you were to pay 10 % more than the minimum each month( in this case, R890) you will pay off the loan in about 15.5 years, rather than 20. This results in you only paying R892 000 in interest.“ And of course the value of the property itself will be growing at the same time, and your equity will be mounting up quickly to provide a solid foundation on which to build wealth and meet your future needs,” he continues.
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