South Africa's Affordable Market Outperforms All Other Segments
According to Lightstone, the affordable sector (valued at R700 000 or less) is by far the largest portion of the South African residential property market - amounting to 71,4% of the total volume of residential properties.
The total South African property market consists of 8 million properties. The total residential property market is valued at about R5,3 trillion Rand - of which the total value of the affordable market is R1,143 trillion. The biggest concentration of affordable property is in Gauteng (32,1%), Western Cape (13,8%) and in Kwazulu-Natal 13,2%.
According to Paul-Roux de Kock of Lightstone, while the majority of the property market is growing at a stable rate, the affordable market is in a dual pressure system. On the one hand they see potential buyers moving from the informal sector to the formal sector, and on the other hand people are down scaling and dropping back into the affordable market possibly because of the shrinking economy.
Potential buyers are looking at formal markets developing around informal settlements to obtain value for money and developers are filling the gap and meeting the demand. What is so interesting about the affordable market is that parts of this segment grow so rapidly that it could quickly be reclassified into a middle or high-end value segment - as can be seen in especially the property markets of the Cape Town suburbs of Eerste River and Kuils Rivier.
There has been an 21,3% increase in sales of homes (own title) at a median price of R570 000 in Eerste River between 2017 and 2018 - confirming that the local property market is driven by a healthy price related demand for properties priced below R600 000. In the neighbouring suburb of Kuilsrivier (Kuils River), the own title (homes) property market has seen strong capital growth (measured by the rise in median prices achieved) - rising by 23,1% from R975 000 in 2017 to R1,2 million in 2018 - i.e. rising from amid value segmentation to the higher value confirming that buyers are both upscaling from lower prices areas or dropping back from more higher value suburbs to lower priced areas such as Kuils River.
Between the third quarter of 2017 to 2018 developers have responded positively towards all markets with a significant spike of new properties being registered in the low value band.
With the significant growth in the mid to low value market it is encouraging to find traditional disruptors responding positively. Financial institutions like Old Mutual have started Stokvel financing for the low value property market, home owners are earning additional income through renting rooms or backyard properties and developers and community leaders are working together to find innovative solutions to unlock the true potential of this market segment.
The volume and value of the 3 affordable price bands for residential property priced below R700 000
are as follows:
R0 - R250 000 (31,2% of the volume = 5% value)
R250 000 - R500 000 (19,6% of the volume = 9,4% value)
R500 000 - R700 000 (13% of the volume = 9,9% value)
The size and value of the 4 price bands for residential property priced above R700 000 are as follows:
R700 000 - R1 million (12,7% = 13,6% value)
R1 million - R1,5 million (10,3% = 16,1% value)
R1,5 million - R3 million (9,6% = 25,2% value)
Above R3 million (3,5% = 20,7% value)