House Price Growth

According to the Absa House Price Index, house price growth continued to slow down in August 2013, based on nominal year-on-year (y/y) growth the average value of homes in the middle segment of the South African housing market.

Price growth in the middle segment of the housing market was a nominal 8.4 percent y/y in August 2013 from 9.4 percent y/y in July.

Writing in the report, Absa Home Loans property analyst Jacques du Toit says in the first eight months of the year the value of middle-segment homes increased by an average 10.4 percent y/y.

Du Toit points out that y/y nominal growth was evident in all three segments of housing and in real terms, house price growth recorded 2.9 percent y/y in July from 4.7 percent y/y recorded in June.

According to Absa data the average nominal value of small homes was R741 100, medium-sized homes (R1 074 400) and large homes (R1 698 000) in August.

“Single-digit house price growth is forecast for the full year, with real price growth set to be a function of nominal price trends and headline consumer price inflation,” he says.

A thought worth pondering on is that South African house prices are overpriced by 20 percent (25 percent in 2012), as such, property economist Erwin Rode says it is ideal to rent rather than buying unless one is buying cash.

Readers will recall that in 2012, when Rode said properties were overvalued by 25 percent, his statement caused quite a stir.

The situation hasn’t changed much as after writing this article, I had an interesting observation by John Bond, an estate agent.

Bond says “the fact of the matter is that property prices in South Africa are driven by supply and demand, and that the value of a property is determined by what a willing and able buyer would be prepared to pay.”

According to Bond, he noticed that some of the bank appointed valuers in areas where he operates return low values, an issue he has taken up with the banks based on facts.

“My personal perception of comments that property (in general) is overvalued is an attempt by the powers that be, to continuously try to force slow to zero growth in what is the typical South African’s greatest asset.”

Bond wonders why there is an attempt to force prices of property down, while basic commodities (petrol, electricity and food for instance) are by far overvalued in Rand terms?

"The cost of buying a property is high and I agree with this, but it is an asset that can and will enrich the nation.

“Increasing property values creates wealth for individuals - the common man - increasing basic commodity prices creates wealth for large organisations run by people in power,” says Bond.  

Furthermore, every individual has a choice to buy property today, at double the price the same property could fetch five years ago, the price paid is determined by the market - that equals growth in value and wealth.

The same individual does not have a choice when paying double for a litre of petrol, a unit of electricity, a loaf of bread, for example, explains Bond.

“Property prices (in general) could never be overvalued...the price is driven by individuals, willing buyer meets willing seller equals value, and any other argument would not make any sense,” says Bond.

Luxury home market

Pam Golding Properties (PGP) reports improvement in the residential property market and capital growth in the Cape Town metropolitan area, particularly, the sought-after Atlantic Seaboard.

According to PGP managing director for the region, Laurie Wener, top performing areas include the Southern Suburbs, such as Rondebosch and Newlands and thanks to demand, buyers are prepared to pay up to R8 million or more for a good sized family home located close to schools.

The sectional title market is also seeing a surge in buyer activity in the City Bowl and along the Atlantic Seaboard as buyers continue to search for convenience. Wener notes that the Cape Town Central City is also seeing a resurgence of interest, thanks to city rejuvenation projects and commercial property developments taking place.

After a long spell of muted interest, international buyers have re-entered the market in significant numbers in the last six months (March to August 2013), most notably on the Atlantic Seaboard, but also in the Western Seaboard/Blaauwberg area and in some of the Southern Suburbs, says Wener.

These foreign buyers come from the UK and continental Europe - but also increasingly from the rest of Africa, the Middle East and Far East.

PGP recently sold luxury homes to buyers from Ghana, Angola, China, Nigeria and the UAE.

“These buyers are typically seeking luxurious properties with unobstructed ocean views and high levels of privacy, with access to the cosmopolitan lifestyle and favourable climate offered by the Atlantic Seaboard.”

Meanwhile, in Gauteng, Rawson Property Group reports that the suburb of Morningside, north of Johannesburg has seen its property values returning back to the boom of 2007 levels.

According to Ben Cilliers of the Sandton franchise, sectional title units are priced between R1 million and R5 million with ultra luxury penthouses selling for R16 million or more.

He points out that 69 percent of homes in Morningside are sectional title, 19 percent are in gated estates and only 12 percent are freehold homes.

“Sectional title homes average at R 1.604 million , while estate and freehold properties are selling at an average price of R3.525 million with many being valued at over R20 million,” he says.

Cilliers notes that most properties in Morningside have been appreciating steadily in price for some time now with a price increase of between 5 and 7 percent per annum for sectional title units while more expensive, upmarket homes are not yet showing signs of price rises but prices here have stabilised significantly.

“More so than in almost any other upmarket South African suburb demand for homes in Morningside is way ahead of supply, because of its aesthetics, composition and highly strategic position, just a few kilometres from the Sandton CBD and within 15km of the Johannesburg CBD.”

What’s more, a property that is priced right in Morningside easily sells within 48 hours, pointing out that they recently sold a home for R4.15 million within three and a half hours of coming onto the agency’s books.

“Morningside residential property now represents a very good opportunity to achieve significant capital growth on an investment.”

Super luxury homes, so-called trophy properties priced between R20 million and R30 million, sometimes even more are still finding buyers.

According to Lew Geffen, chairman of Sotheby’s International Realty in SA, the group’s Atlantic Seaboard and Johannesburg operations, for example, have sold more than R250 million worth of ultra-high end homes in the past three months – some of them in areas where such sales had not been evident for years.

Not surprising to many, as Johannesburg and Cape Town are two of the Top 4 South African cities to buy into.

The homes sold include several super-luxury apartments in Bantry Bay, priced between R23 million and R35 million, a R27 million property on the V&A Waterfront, a R30 million mansion in Sandton’s Morningside Manor and a string of executive homes in Houghton, Illovo, Sandhurst and Westcliff, Johannesburg’s luxury home locations.

Geffen points out that the surge in sales activity is because there are more potential buyers in the market for super-luxury properties, and they have ‘cash in hand’.

 “At the same time, we have seen a new pricing realism among serious sellers that has encouraged those buyers to make offers and finalise transactions.”

He says lately, South Africa has been helped by the relative weakness of the Rand, which makes local property relatively inexpensive for those buying in dollars, pounds or euros.

“However, it must be said that the huge majority of recent buyers in the local super-luxury sector have actually been South African High Net Worth Individuals who are confident about their future in the country as well as investors from other African countries who see the country growing in stature and prosperity as it fulfils its role as a gateway to Africa.,” he says.

Affordable market

While property prices have shown growth in sough-after locations and in the luxury home segment, home prices in Mitchells Plain have shown no signs of rising as yet – but they are no longer falling.

According to Michael Feltsman, Rawson Property franchisee, prices are now stable and they expect steady rises from the end of this year onwards.

He says despite a small but steady outflow of Mitchells Plain residents to areas such as Goodwood, Parow, Bellville, Brackenfell and Kuils River, demand for homes in Mitchells Plain, remains strong – and if a home is priced right, it will always sell within four to eight weeks.

Feltsman says the challenge is not finding buyers, but rather finding stock.

Very few homeowners are upgrading and those who are paying off a low priced unit bought some years ago – or have already paid it off – tend to sit tight and hold on.

The main reason for this is, that there is insufficient supply of starter homes for young couples, he explains.

Getting more buyers qualified for bonds remains a challenge with still some 40 percent of applicants being rejected even after careful pre-qualifying and it does seem that banks rely on their scorecard criteria rather than on a perceptive analysis by an experienced loan manager, hence side-lining some very worthwhile applicants, he points out.

He says over the last year, they sold between two and four homes per month and the majority of these properties were priced between R300 000 and R450 000.

For the first time, sales on the borders of Khayelitsha, Mandalay and Montclair are seen and with so many Mitchells Plain residents not in a position to buy, rental demand is strong, with ordinary two and three bedroom homes fetching up to R3 500 per month, he adds. – Denise Mhlanga