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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