select
|

Why the property market growth is sustainable

(By Dr Andrew Golding, CE of the Pam Golding Property group)

We now have - at long last, you might sigh - a residential property market which has thrown off the burden of a long recessionary period while defying obstacles to growth such as a dismal economic performance, rising inflation, high household debt, massive utilities bills and an alarming degree of labour and social unrest.

If you toss into the pot the strictures in obtaining mortgage finance, the beginning of a an upward turn in the interest rates cycle, and the often onerous costs in buying and owning a home you might ask yourself WHY? Why has housing transformed from a buyers’ paradise into a sellers’ market?

The turnaround has accelerated over the past year or so, but the improving trend has been due to a combination of factors, some of them relatively long term. These include the gradual accumulation of pent-up demand, dramatic demographical changes, a weakening currency which encourages consumers to seek what they perceive to be more solid investments ( linked to profit-taking in the equities markets realised into property), and a return of confidence. 

 A relatively recent factor in improving confidence and the appetite for property has been greater access to bond finance. Banks have taken time to recover from the losses incurred by the market collapse – reducing their default book from around 12-13 percent in 2009 to below 5 percent today. Partly as a result of this, bond finance has become easier. In fact, in the first half of the year banks have lent some R12 billion worth of mortgages – more than any other category of private sector lending.

The market over this past year has reflected this, both in numbers of sales and values. For example, the Pam Golding Property group’s sales in July were in excess of R1.4 billion – 20 percent higher than July 2013. Brisk sales have led to a shortage of stock and a situation where buyers are chasing sellers. And, surprisingly, this situation has heightened during our winter, when residential property sales are normally sluggish.

Will this situation last? The answer to the question of sustainability lies, to a great extent, in the socio-economic patterns which have developed, and will continue to develop, in South Africa since its democratic birth in 1994. Demographics have changed. Black economic advancement has helped create a new, relatively wealthy middle class.

According to the Unilever Institute of Strategic Marketing, the number of people making up South Africa’s black middle class had last year grown to 4.2 million and enjoys a combined spending power of more than R400 billion a year; this is substantially more than the R320 billion attributed to the white middle class group. Soula Proxenos, MD of International Housing Solutions, a global housing investor, avers that this meteoric growth will rise to even higher levels this year. Moreover, Efficient Group economist Merina Willemse comments: “Within the group we call the (black) middle class there is a small group who maintain a very high standard of living.”

A considerable number of middle class employees are in the public service, many earning substantial salaries. Over the past decade public service employment grew by 22 percent. According to Stats SA, there are close to one and a half million people employed in the national and provincial governments with a further quarter of a million working for local governments. There are also hundreds of thousands working for public institutions such as parastatals. The extension of the country’s provinces to nine has had a major impact on public service employment.

To put it into perspective, the public service wage bill accounts for at least a third of all government spending.

Of course, the private sector has also played its part in the creation of wealth. Young educated black people hold down top grade jobs in business , in sectors such as finance, insurance, law, mining, medicine and many and varied industries. SMEs have burgeoned, helping to create a new, successful body of entrepreneurs.

The earning power of the black middle class has also brought about another factor which impacts on their spending power – access to credit. This alone has had a major impact on the growth in the residential property market.

This acceleration in employment and earnings has helped create yet another phenomenon – the rapid spread of urbanisation, and this is closely linked to the demand for homes which in turn has led to the current shortage of stock the industry is facing.

According to the Institute of Race Relations two-thirds of South Africa’s population now lives in urban areas. The most rapid growth has taken place in smaller cities such as Polokwane, Rustenburg, Vanderbijlpark and Nelspruit. Gauteng, geographically the smallest but economically the busiest province, has the largest and fastest-growing population, double the national average.

This explosion of urbanisation and the increasing numbers and earning powers of South Africa’s previously disadvantaged citizens is helping to swell the growth we are currently seeing in the residential property market. These patterns are set to continue and in doing so will surely underpin its sustainability.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    • 17 Nov 2017
      The EAAB (the Estate Agency Affairs Board) recently claimed that around 50,000 illegal estate agents could currently be operating illegally.
    • 16 Nov 2017
      Penthouses are synonymous with New York – characterised by high-rise living that is decidedly luxurious and spacious. While exclusivity comes at a price, you can still create a “penthouse” look and feel in your existing apartment or even the upstairs bedroom of a double storey house with some clever design changes and styling touches.
    • 16 Nov 2017
      The area has long been popular with kite surfers and, with escalating property prices in Cape Town itself, is increasingly in demand with home owners who work in town, but are looking to invest in more affordable properties.
    • 16 Nov 2017
      Cape Town’s popularity as a world-class tourist destination has resulted in a spike in the number of homes available for holiday lets and fuelled investor demand for sectional title units with short term rental potential.
    • 15 Nov 2017
      Sappi, one of South Africa’s oldest global companies and a leading global supplier of sustainable woodfibre products, has moved its global and regional headquarters to a new site on the corner of Oxford and 14th Avenue in Rosebank.
    • 15 Nov 2017
      There’s an old saying in real estate that you should seek to make a profit when you buy, not only when you sell – and a large part of succeeding at that endeavour is buying a home in an area with desirable features that will enhance the resale value of your property.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK