Value of residential property transactions are increasing

This is despite gross domestic product growth remaining very low, new vehicle sales plummeting, and an increasingly aggressive upward interest rate cycle.

Fifty percent of residential properties are located in the Western Cape and Gauteng, accounting for more than two-thirds of the total residential market value. Sandton and Parkmore in Johannesburg, Green Point and Rondebosch in Cape Town, and Rua Vista and Monument Park in Tshwane, as well as La Lucia and Mount Edgecombe in eThekwini in KwaZulu-Natal, were among the high-value suburbs with strong capital growth last year.

“Although the money supply of asset-buying consumers is lessening, property investment remains a top priority for many South Africans, with the City of Cape Town witnessing spirited growth in the housing market over the last five years,” said Paul-Roux de Kock, analytics director for Lightstone. He was addressing the annual Overview of the South African Property Industry conference that took place recently at Val de Vie Estate outside Paarl in the Western Cape.

Cape Town property market

The Western Cape is the location of over 17.5% of the 6.2 million residential properties in South Africa, and lays claim to 25.4% of the R4.3 trillion total value of the housing market. The City of Cape Town’s residential property market witnessed an increase of 12.3% in total value transacting from 2015 to 2016; 45.8% of 700,000 properties are mortgaged, which in rand value sits at just over R450bn of the council’s total housing market.

“In 2004, in the larger suburbs of Paarl, 900 properties were sold at an average price of R750,000. Ten years later, in the same suburbs, 706 properties were sold at an average of R1.85m,” Paarl property lawyer, Stefan van Niekerk, said.

While housing markets in Johannesburg remain stable, Cape Town is showing much stronger growth than all other metros. This is supported partly by Gauteng home owners increasingly choosing the Western Cape (and KwaZulu-Natal, where the eThekwini market is similarly stable) when buying outside their province, with the intention to eventually relocate. “We’ve witnessed a steady increase in ‘semigration’ over the last five years,” De Kock observed.

He added that estate living is fast becoming a preference, largely because of the associated security and lifestyle-convenience aspects. In addition, “Although luxury-market buyers are under pressure, the estate-housing market in general doesn’t dip as low or peak as high as the rest of the luxury market. We therefore expect it to outperform the luxury market during the current downturn.”

Share of market supply

Estates own a 5% slice of the overall housing market supply, but carve out a staggering 15% share in total property market value, with more than half of estate properties being bonded. “Total value locked up in estates is now close to the total value of all residential properties in the City of Johannesburg, for instance,” said De Kock.

Over 50% of estates - which include golf, equestrian and polo, coastal, lifestyle, country and wildlife estates - are located in Gauteng, and a further 25% in the Western Cape. The average price of an estate home is R2m, almost three times the national average of R700,000 for a home.

“The total value of properties sold in Paarl over the last 15 years is roughly R10bn. Half of that was through three lifestyle estates, two of which were Val de Vie and Pearl Valley Golf and Country Estate,” Van Niekerk added.

Lightstone’s forecast for 2016 is that nominal house price inflation will top out at around 3.5%, resulting in real deflation of home values as the Reserve Bank battles to keep the consumer price index within the 6% upper band.

If we see a positive turnaround in the economy, the best-case scenario is that the drop will be subdued and the year will end off at around 4.6%. If we have to weather any more major economic storms, however, house-price growth could drop to 2.5% or even lower.