The Western Cape and Gauteng property markets continue to thrive

Despite hopefully being near the peak of the interest rate hiking cycle, South Africa’s residential property market remains supported by underlying fundamentals - most notably the fact that overall demand continues to exceed supply.

Dr. Andrew Golding, Chief Executive of the Pam Golding Property group says this is perhaps particularly evident in the Western Cape, which is characterised by high demand and stock shortages, while Johannesburg has stock available with less demand - yet both markets function and demonstrate ongoing resilience.

SEE: No festive cheer as rate hikes again | What it means for property owners

While nothing like the global boom, South Africa’s housing market also experienced a post-pandemic boom in 2021 and 2022 in both volume (units sold) and value. Locally, the increase in prices was relatively muted, and given several years of single digit price increases (and decreases from year-earlier levels in real terms) SA’s housing market overall is unlikely to be overvalued and in bubble territory – although still vulnerable, to a degree, to a slowdown in activity.

According to Lightstone, total residential unit sales in SA declined by -0.35% in H1 2022 from year-earlier levels, while the volume of bonded sales dropped by -8.1%. In contrast, the value of sales rose by 2.0% (+R3bn).

While the total number of homes sold during H1 2022 was marginally lower than during the same period in 2021, it remained elevated (+13.1%) compared to the pre-Covid period during 2019. In contrast, the value of homes sold during Q1 2022 was higher than the same period in 2021 – presumably reflecting the fact that the second wave of home buying triggered by the pandemic was mainly fuelled by more affluent homeowners taking advantage of the low interest rate environment to purchase larger, freehold homes with more space (for those now working from home) or to semigrate to a coastal region.

From a Pam Golding Properties perspective, sales turnover for the year to end October 2022 is consistent with the previous year with increased turnover of 32.8% in the price band above R6 million, while residences sold in the R3 million to R6 million price band increased by 29.3% in turnover, and total transactions up to R3 million increased in sales value by 37.9%.

Increased demand for luxury homes

“As far as the luxury end of the market is concerned, we have seen an increased demand for high-end homes in excess of R20 million and upwards of R30 million to R80 million and beyond. These include residences sold in areas such as Sandton, Dainfern and other Northern Suburbs of Johannesburg, Steyn City in Fourways, and in Cape Town - Clifton, the V&A Waterfront, Bakoven, Camps Bay, Bantry Bay and Mouille Point on the renowned Atlantic Seaboard, and Constantia and Bishopscourt in Cape Town’s Southern Suburbs,” says Dr. Golding.

READ: Cape Town’s Southern Suburbs welcomes The Kingsley Luxury Apartments

This high-end segment of the market is characterised by buyers both South African-based and international who have decided to invest in iconic, lifestyle properties – many of whom have elected to live or spend more time in the Cape. The entire Atlantic Seaboard has experienced a surge in confidence and top-end buyer activity. Coupled with this, in Gauteng, we are experiencing a great deal of interest in top golf estates such as Blair Atholl, Dainfern, Eagle Canyon, Ebotse and Serengeti.

Most international buyers mention that the value offered by our properties is significant and the lifestyle compelling – ranking with the best on offer elsewhere in the world, while this segment of the market remains unaffected by interest rate hikes. Buyers with meaningful resources are also keen to diversify their investments while simultaneously benefiting from living in properties providing outstanding views, lifestyle and amenities.

SEE: 4 jaw-dropping millionaire’s beachfront mansions for sale in Cape Town

The number of international buyers in the last 12 months comprises 4% of our total buyers purchasing existing homes, with an average price of R5.85 million. Our international buyers are from numerous countries spread across the globe, with the top 10 being Germany, the UK, Zimbabwe, USA, the Netherlands, Switzerland, Botswana, France, Nigeria and Congo.

According to an FNB Estate Agent Survey, while nearly 6% of sales across the SA housing market were to foreign buyers during the initial stages of the pandemic (H1 2020), this has eased to less than 3% during the first half of 2022.

SOURCE: FNB Estate Agent Survey

SOURCE: FNB Estate Agent Survey

Also, according to FNB, the percentage of those buyers who originated from the African continent soared to 40% in Q3 2020 but has since eased – averaging 14.5% during the first half of 2022.

Factors underpinning SA housing market

A number of factors continue to underpin the local housing market:

• Banks continue to compete for market share, ensuring that lending conditions remain supportive, particularly low/zero deposits and competitively priced home loans, while
• Demographic underpinnings are provided by a young population profile and rapid growth in the number of households.
• Due to the rising cost of fuel and living, with remote working being phased out in some instances, housing market activity is being boosted by the need to live closer to work, school and amenities.
• People are still buying, selling and relocating for all the usual reasons, most notably changing lifestyles.
• Rising interest rates has seen renewed demand for rental properties, prompting a renewed demand for buy to rent and/or investment homes.

Regional Markets

SOURCE: Pam Golding Residential index

The Western Cape housing market has registered the strongest growth among the three major regions during the past four years, including the year to date, with KZN following in second spot. Although Gauteng has underperformed relative to the national average in all four years, house price inflation in all three major regions has been stronger in the three years since Covid first hit the SA economy.

While unit sales in Gauteng have failed to rebound to pre-Covid levels, in the Western Cape and KwaZulu-Natal H1 2022 sales exceeded the same period in 2018, 2019 & 2021. Highlighting the higher average purchase price for homes in the Western Cape, in Q2 2022, Gauteng accounted for 37% of unit sales vs W Cape at 24% - yet both accounted for 36% (R31bn) of sales value.

Metro markets

House price inflation in all metro housing markets is losing momentum – with the exception of Nelson Mandela Bay where growth in prices has accelerated since mid-2021.

Within Gauteng, Ekurhuleni is showing greater resilience in price performance than Johannesburg and Tshwane, with house price inflation showing signs of stabilising at around 5.3%. The market may well be benefiting from its status as a more affordable destination than Johannesburg and Tshwane.

READ: Ekurhuleni is becoming Gauteng's property hot spot

SOURCE: Lightstone

Among the coastal metros, NMB is an outlier, with growth in prices accelerating even as the major metro and regional markets are showing a slowdown in growth in house prices.

Could sectionalisation solve the housing market's growing stock shortage?

Despite the country’s economic woes and the somewhat lacklustre performance of the housing market, stock shortages are looming in many areas - and not only in those where ongoing semigration has led to a spike in demand, according to Arnold Maritz, Co-Principal of Lew Geffen Sotheby’s International Realty in Cape Town’s Southern Suburbs.

“Nationwide, we’re seeing growing stock shortages with very few approved new developments to alleviate the problem, and this can largely be attributed to bulk service issues such as sewerage and water infrastructure.”

He adds that in Cape Town the situation is exacerbated by the city’s geographical positioning between mountain and sea with very little available space left for further development.

“It’s for the latter reason that the sectionalisation has become an increasingly common tool employed by developers in Cape Town in recent years and is now a very viable solution in many parts of the country where new development is curtailed for whatever reason.

“However, what many people don’t know is that the option to split their properties into double or even triple dwellings is actually available to most homeowners and not only to developers.”

Maritz says that in the past, property owners had to rezone their properties to open a sectional title register or wade through reams of red tape to subdivide the erf. 

These days however you can develop a maximum of three sectional title units without having to rezone the property.  All you need is to obtain building plan approval for which neighbour’s consent will only be required if your plans require departures.

“This is because South Africa’s approach to densification has changed significantly with the focus no longer being on low density development that ensures lots of space; it’s shifted to higher densification to address the growing lack of adequate accommodation in and around metros.

“You can also sectionalise properties in developments if the constitution of the homeowner’s association allows for it – or doesn’t specifically prevent it.”

Home buying trends

First-time buyers are typically more sensitive to a rising interest rate environment - as they are at the early stages of their careers and have fewer financial resources for deposits and associated costs of homeownership. “As a result, we have seen the post-pandemic boom in first-time home buyers moderate with applications now stabilising just below 50%,” says Dr. Golding.

Positively, three measures of banks’ appetite for lending to the market include:

Pricing of loans – ooba’s average concession below prime improved sharply in October 2022, shifting to -0.54% from -0.28% in September.

Approval rate – this reflects the ongoing appetite of banks to extend mortgages, as well as the quality of applicants.

Deposits - one indicator which does appear to have shifted is deposits as a percentage of the purchasing price. After rising above 93% during the first half of 2022 (6m moving average), the loan-to-price ratio has since declined to 91.4% in October. This is the first sign that the banks are becoming slightly more cautious.

Interestingly, FTHB deposits were lowest in Q2 2020 at 6.0% of purchase price while overall deposits reached their low point in Q1 2022. Nonetheless, both remain below pre-Covid highs – the average rose to 8.6% in October (6m moving average) while for FTHB it increased to 8.2%.

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