WORDS: Dr Andrew Golding :: PHOTOS: Photo by Marcin Jozwiak
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 KwaZulu-Natal in second spot. Though 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-19 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. Ekurhuleni has shown signs of stabilising at a relatively high level – underpinned by first-time home buyers as homes remain more affordable in this region. Within Gauteng, Ekurhuleni is showing greater resilience in price performance than Johannesburg and Tshwane, with house price inflation showing signs of stabilising at about 5.3%. The market may well be benefiting from its status as a more affordable destination than Johannesburg and Tshwane.
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. 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 home ownership. As a result, we have seen the post-pandemic boom in first-time home buyers moderate with applications now stabilising just below 50%.
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. This is the most competitive pricing seen since the final years of the 2008/09 recession in the wake of the global financial crisis and goes some way towards making home loans more accessible for South African home buyers.
- Approval rate – this reflects the ongoing appetite of banks to extend mortgages, as well as the quality of applicants. Approval rates declined during the first year of the pandemic (APR 2020 – APR 2021) but then rallied. In the case of first-time home buyers, the approval rate exceeded the pre-Covid highs briefly in late-2021. While there was a second slowdown in approval rates during the first half of 2022, they are increasing once more. Both the trailing effective and the FTHB approval rates remain elevated just below pre-Covid highs. Furthermore, while approval rates for 100% loans drifted lower during 2020, they have rebounded and are now at similar levels to pre-Covid highs of nearly 85%. Approval rates have remained above the 84% level for three consecutive months. What has changed is the percentage of applications which are for 100% loans. After spiking in the wake of the aggressive interest rate cuts (67.5% in June 2020) they have drifted lower, particularly in the wake of the series of interest rate hikes since late 2021.
- Deposits — one indicator which does appear to have shifted is deposits as a percentage of 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.
| Deposit % purchase price | Q4 2019 (ave) | Q3 2022 (ave) |
| Overall | 10.8 % | 9.1 % |
| FTHB | 9.2 % | 8.1 % |
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%.
OTHER KEY TRENDS
Return of Sectional Title: The surge in demand for freehold properties triggered by the pandemic – amid a fear of shared spaces – appears to have faded and the desire for sectional title has continued. In October, growth in freehold prices had slowed to 3.47% compared to 2.22% for sectional title homes. During the year to date, house price inflation for freehold homes was 5.34% — almost double the average year to date for sectional title homes (2.68%).
Semigration continues: One would expect the semigration to peripheral suburbs and holiday/retirement villages and towns to abate somewhat as people realise they may be required to go back to the office at least part of the week, making a lengthy commute less appealing or viable. However, the semigration to well-run municipalities (such as the Western Cape) is likely to continue. There is probably, however, a limit as to how long this trend can run and that is the extent to which people can afford to relocate. That said, popular areas for semigrators for lifestyle reasons include Cape Town, the Boland & Overberg, Knysna, Plettenberg Bay, St Francis Bay, Kenton on Sea, uMhlanga, Ballito and Zimbali. Gauteng, primarily Johannesburg, always attracts a high number of semigrators relocating for career and financial opportunities.
| % >R3m sales | Q1 2010 | Q1 2020 (pre-covid) |
Q2 2022 |
| Western Cape | 31.6 | 34.7 | 45.8 |
| Gauteng | 37.0 | 34.4 | 32.7 |
| KwaZulu-Natal | 13.3 | 13.0 | 9.2 |
| Eastern Cape | 4.0 | 3.9 | 3.7 |
The top end of the Western Cape housing market has clearly benefited from the two waves of semigration – particularly the second wave triggered by the pandemic. In Q2 2022, the Western Cape accounted for almost half of all >R3m sales in SA, followed by Gauteng at almost a third. According to the Q3 FNB Estate Agent Survey, 14% of homes sold in Q3 were due to homeowners relocating within SA – an indicator of ongoing semigration or movement between provinces.
Urbanisation/Return of urban hubs: In addition, young people (of which we have many, though the majority cannot yet afford to enter the housing market) will continue to be attracted to the metro areas – where there are jobs and an appealing urban lifestyle. This is reflected in the large number of mixed-use developments evident in urban hubs and surplus office space being converted to residential.
Increasing demand for estates: There is a clear increase in demand for homes in estates – in part the result of greater diversity in the housing offering available in estates. Apart from the key element of security, there is the added convenience of hassle-free maintenance and access to amenities which you only share with other homeowners and not the public. Also appealing is the extent to which some estates offer self-sufficiency in water, services like waste removal and energy. According to Lightstone, just over 17% of all homes sold during the first half of the 2022 were located in estates. Estates are a small, but growing, percentage of the market – a trend we believe is set to continue. Within this market, the key beneficiary is the Western Cape – with a growing share of the market which correlates with the waves of semigration to the province.
Estates account for a growing percentage of >R3m sales – rising from about 20% in early-2010 to 37.9% in Q2 2022. Freehold homes remain the most popular – and appear to have experienced a bounce during the Covid-19 years. Sectional title homes account for just 10% of home sales in the >R3m price band. Shift towards Sectional Title: While SA housing stock remains predominantly freehold, there is a clear shift towards sectional title. This is evident in the composition of new housing stock, with sectional title increasing from 21.5% of all new homes sold in 2018 to 30.5% of new units sold in 2021.
According to Lightstone data, the two semigration waves have resulted not only in an increase in the Western Cape’s share of estate sales but also an increase in the Western Cape’s share of new home sales. Pre-Covid-19 the Western Cape accounted for about 25% of all new homes sold in SA. By Q2 2022 this had risen to about one third.
There are a number of reasons for the popularity of sectional title homes:
- Affordability — particularly since there are a large number of young adults in SA looking to gain a foothold on the property ladder
- Cost and convenience — maintaining a sectional title property is more affordable and convenient as the costs are shared with other homeowners, and services such as painting and gardening are undertaken on behalf of all homeowners
- Amenities — while estates offer homeowners various amenities, new developments increasingly offer access to roof-gardens, pools and gyms to a larger number of homeowners and renters as part of the live-work-play trend
- Security — security is an increasingly important issue for homeowners and is generally better in a sectional title home
- Location — is varied but new sectional title developments tend to be focused in business nodes such as Sandton and Cape Town CBD (where land is scarce and expensive) and in coastal areas such as the Atlantic seaboard and Western Seaboard (again, land is limited and expensive), but also increasingly in estates as the latter tries to make estate living available to a broader range of homeowners. Furthermore, the student market is increasingly important, and properties catering for this market also tend to be sectional title for the reasons above.
THE RISE OF THE 15-MINUTE LOCATION
This seems really to just be a variation of the live-work-play type trend where everything is close at hand. So mixed-use developments will remain popular as well as key hubs or nodes with all amenities/entertainment/work on hand for those who work from home or at shared work spaces. The 15-minute city has been about globally for a while but certainly seems to be gaining traction here, for example, central Sandton is positioning itself as a 15-minute city.
LIVING WITH – OR WITHOUT – LOAD-SHEDDING
There are three potential ways to respond to the prospect of ongoing load-shedding in particular and failing municipal services in general:
- Invest in solar panels, batteries, water tanks and so on and make your home as self-sufficient as possible
- Relocate to an estate or development which offers greater efficiency (new mixed-use developments often include the latest technology) or to an estate which is self-sufficient in electricity, water or municipal services like refuse removal and security
- Relocate to areas like the Western Cape which are better run and offer a measure of protection against load-shedding – as well as offering a clear plan of how to end load-shedding in the future for example, Stellenbosch.
