Affordability for first-time buyers spurs the market

Affordable housing market – 33% price growth since 2009

CAHF report: since 2011, bonded sales in the R300 000 to R600 000 category rose faster than others.

Although the residential property market is still riding through the house price and supply slump, the affordable property market seems to be the anomaly.

New figures from a report by the Centre for Affordable Housing Finance in Africa (CAHF) points to the lower-end of the market –  characterised by properties valued at less than R600 000 – rapidly growing for the past four years. 

The supply of properties in this market is a case in point. Of the 6.7 million properties on the deeds office registry, 63% of properties are at valued less than R600 000, trumping properties in upper segments.

This figure includes properties under R300 000, often referred to as government sponsored or subsidised homes.

Also, the performance of the affordable housing market continues to sparkle on the house price growth front. Since 2009, properties valued at over R600 000 have increased in value by almost 30%, while properties under R600 000 have grown by 33%, according to the report. Furthermore, properties which are valued at less than R300 000 have posted a cool 40% increase in value.

Other figures from more experts show a similar trend. Former townships saw a house price growth of 11.6% for the first quarter of 2015, compared with 9.3% in the previous quarter, according to FNB.

The market has continued to outperform major metropolitan areas like Cape Town, Johannesburg, Tshwane, Nelson Mandela Bay and eThekwini, which showed a growth rate of 7.3%.

FNB household and property sector strategist John Loos says the market saw 25% of first-time buyers, from a high of 28% in the previous year.

The reason for this robust performance is simple: largely the affordability of properties for first-time and value-conscious home buyers entering the housing market and access to mortgage loans.

The stellar performance of this market has piqued the interest of banks. Adelaide Steedley, CAHF director says banks are starting to understand the risk profile of consumers in this market and are subsequently granting loans to them.

The CAHF report notes that since 2011, bonded sales in property categories of R300 000 to R600 000 have risen more rapidly than other segments.

“However, with access to bonds, home prices increase because buyers have resources with which to pay a more competitive price, causing sales to increase. Without access to credit, the pool of buyers drops, sales slow down, and [property] values stagnate,” the report notes.

Despite the positive sentiments, consumers in this segment are vulnerable to economic shocks such as interest rate movements and inflationary pressures.

Property economist Francois Viruly says only about 30% of South Africans do not need housing subsidies from the government, meaning they usually qualify for mortgage bonds, but 70% are in the social and RDP housing system.

“It’s very nice to say we’ve got a market growing at 11%, but the affordability issue really starts hitting home because most people’s salaries don’t go up by 8% or 9%,” says Viruly.

While many property developers shied away from this market for many years, citing the high risk of the consumers and humdrum returns on property, industry players are taking note of the lucrative property fundamentals of this market. Also, the lull seen in the performance of other residential markets has pushed many investors to look for new growth avenues.

Residential property counters listed on the JSE’s more than R500 billion real estate sectors are bullish on the market by supply rental units. Octodec Investments has been investing millions in office-to-flat building conversions in Pretoria and Johannesburg, offering rentals ranging from R3 000 to R5 000 per month.

Recently-listed Indluplace Properties, the only residential-focused fund on the JSE is also growing its exposure to the market. Indluplace Properties executive director Imraan Suleman says average rentals are R5 300 per month across the fund’s housing units, which are spread across Gauteng in areas such as Randburg, Berea, Yeoville, Pretoria and Vanderbijlpark.

“We are placed in the affordable and entry-level housing market and there is not sufficient supply to meet the demand,” he says.

Source – Moneyweb - Ray Mahlaka