How has load-shedding changed what buyers are looking for in the housing market?

In recent times, South Africa has witnessed a significant surge in the installation of alternative or backup electricity solutions. This shift in the real estate market has raised questions about the ownership models preferred by homebuyers and whether properties with pre-installed alternative energy solutions are becoming a key consideration for buyers. 

The Rise of Alternative Electricity Solutions

According to the recent FNB Estate Agents survey, a staggering 75% of real estate agents have reported an increase in the installation of alternative electricity solutions. This trend is more prevalent in higher-priced segments, with 81% of traditional market agents reporting an increase compared to 56% in the affordable market. This discrepancy suggests that affordability plays a crucial role in this shift, as higher-income homeowners often have better access to funding options.

Ownership Models Preferred by Home Buyers

When it comes to ownership models, the majority of homeowners, at 71%, prefer to purchase these alternative energy systems outright, even if they use home loans or other forms of credit to finance the purchase. Only a mere 3% opt for rental solutions through independent providers, while 27% choose a mix of purchasing and renting components of the system. Interestingly, the affordable market paints a different picture, with 54% opting for a combination of rental and purchase. This variation highlights differences in affordability and access to funding.

The Role of Pre-Installed Energy Solutions

One intriguing finding from the survey is that, despite the disruptions caused by load-shedding and increased investments in alternative energy sources, 64% of agents believe that pre-installed energy solutions are not a key consideration for prospective buyers. However, this sentiment differs between the affordable and traditional markets. In the affordable market, 56% of agents state that energy solutions are a crucial consideration for buyers, while in the traditional market, only 30% believe that solar installation is an important factor.

This disparity can be attributed to wealthier households having superior access to savings and funding options, making it easier for them to install customized systems with ease. Additionally, customizing their energy solutions allows wealthier buyers to eliminate the risk of information asymmetry, ensuring they get the desired quality and type of system. In contrast, lower-income households, with limited funding options, prefer to purchase homes pre-installed with solar systems. This preference may also stem from socio-economic factors, such as security concerns during load-shedding hours, which are more prevalent in lower to middle-income areas.

Willingness to Pay a Premium

Regarding whether buyers are willing to pay a premium for properties with solar systems installed, the results are mixed. A significant 74% of agents responded negatively. However, this sentiment varies depending on the purchase price of the property. In the affordable market, 50% of surveyed agents believe that buyers are willing to pay a premium, compared to just 18% in the traditional market. The reluctance to pay a premium could also be influenced by the prevailing high-interest rate environment.

The Average Premium

On average, those willing to pay a premium for a solar-installed home are willing to shell out approximately R79,000. This average premium varies widely across price brackets, with the affordable market averaging around R25,000 and the traditional market reaching R126,000. Most agents (69%) estimate the "solar premium" to be within the 0-5% range of the purchase price, while 22% believe it falls within the 6-10% range. Notably, 13% of agents in the affordable market think the solar premium can go as high as >15% of the purchase price. This often results from supply shortages and bidding wars in this segment, which is not observed in the traditional market.

The ongoing issue of load-shedding in South Africa has catalyzed changes in buyer preferences within the real estate market. There is a growing demand for properties pre-installed with solar solutions, particularly in the affordable market. While most agents estimate that the premium falls within the 0-5% range of the purchase price, it can go significantly higher in certain instances, especially in lower-priced segments. In contrast, wealthier buyers in higher-priced segments prefer customizing their energy solutions. These findings shed light on the evolving landscape of the real estate market, driven by the need for reliable alternative energy sources in the face of ongoing energy challenges.