HANNA BARRY: FNB released a property barometer this week, showing that house-price growth in former black townships was a lot stronger last year than it was in former white suburban areas, and it actually outperformed the major metro residential markets overall at 9.5% growth, compared with the latter’s 6.8% growth.
We are taking a closer look into what’s behind this growth on the show tonight, and some of the other trends to come from the property market more broadly.
We are joined on the line by John Loos from FNB Home Loans. Good evening, John.
JOHN LOOS: Good evening.
HANNA BARRY: And then in the studio we have Francois Viruly, professor at UCT and a property economist. Welcome, Francois.
FRANCOIS VIRULY: Hello, Hanna.
HANNA BARRY: John, let’s start with you. What drove strong house price growth in those former black township areas?
JOHN LOOS: Firstly I must say nothing is really booming. The differences aren’t massive. You are talking a 9.5% year-on-year growth in former townships, and 6.8% for the metros overall. As you go up the price bands it’s a little bit lower, and the more affordable segments a little bit higher. So I think that the former townships are still on average the most affordable markets. We’ve seen big first-time buying in recent times.
Our Estate Agent Survey talks about 26% of buyers being first-time buyers. They are probably on average the most financially limited, so they look for affordability and start often at the lower end.
And then of course if we look at our affordability indices for the market as a whole, just last year a slight interest-rate hike, and then the average house price to average labour remuneration index of ours just going up slightly for the first time in a number of years. In other words, house price inflation outperformed average income growth, so there was a slight deterioration in affordability. I think that also just starts to shift a certain portion of the market towards more affordability and they start searching a little bit harder for affordability than maybe a year or two ago.
HANNA BARRY: Affordability the driving factor. Fancois, would you like to jump in? Yes, no?
FRANCOIS VIRULY: I think we are really in an interesting environment at the moment. The important thing is also, when you look at your Saturday pages, and you look at those property pages, just remember that 50% of the South African property market is probably lying between R500 000 and R600 000. That’s a big proportion and people tend to forget that. That’s the market that many people actually don’t see on the Saturday and Sunday pages.
And the yields that we see – and we can talk about that – I think there are some very interesting trends. We haven’t got, for example, properties in our listed funds to a large degree. I think if it’s going to happen it will happen in that sector of the market. It is exactly that township market that sits very strongly in that middle market, which is probably one of the more exciting markets to be looking at in South Africa.
So yes, the location is important – where those properties are. But I think throughout Africa, if you are sitting in that band, that’s what you want to look at.
HANNA BARRY: As you say, affordability really is the question there. I’m assuming affordability is between R300 000 and R600 000?
FRANCOIS VIRULY: That’s absolutely the affordable market. I suppose the important point to say is this: it’s very nice to say we’ve got a market growing at 8%, 9%, but the affordability issue really starts hitting because most people’s salaries don’t go up by 8, 9%. It’s nice to see a property market boom when you are in the market, but it’s quite a different story when you are trying to get into that market.
HANNA BARRY: Exactly – as a first-time buyer.
FRANCOIS VIRULY: That’s a different story.
HANNA BARRY: Absolutely. And John was making that point. John, is there supply to meet the demand in this market – the first-time-buyer market?
JOHN LOOS: Generally across the board when we look at our Estate Agent Surveys, over the past three, four years or so, we’ve seen an increasing percentage of estate agents in our surveys reporting stock constraints as an issue in their market. That’s not only in the more affordable markets but at the higher end too.
But I would assume that this is slightly worse, the supply constraint in the affordable market; hence the slightly faster price growth. Now, it has to do with a big building slump post-2007, where the residential building boom reached its peak in that year. It slumped radically thereafter. And building activity has kept relatively low by comparison since then for a good number of years.
Now, if we look at what might be coming, the supply constraints, this year I think we might see some easing of that. The FNB BER Building Confidence Index shot up late last year quite rapidly for the residential contractors, and building plans passed in the second half of last year also started growing very significantly. So yes, there have been supply constraints across the board, probably worse in the township areas. But I think 2015 might be the year when we see some alleviation of that.
FRANCOIS VIRULY: There’s a point that I’ve always made in the South African property market – especially at the lower end of the market. We have largely handled property in what I call a 40 sq m house 40km away from where you live, where you spend 40% of your income on transport. And that’s been the South African solution.
I think what’s becoming very interesting in that sector of the market is a movement not only into the townships but that income group moving into smaller units much closer to where they live [work?], lower transport costs – which means people can afford a home. If you can reduce your transport costs from 40% to 20%, you can put that into your house. So I think that we are probably going to move to 20x20x20 – a very different game.
HANNA BARRY: And do you think that we are going to see that supply coming on stream to service this?
FRANCOIS VIRULY: Well, I think that will be a very interesting point, and I think John looks at it a bit more than I do. I certainly believe the problem that we have in this market is the supply problem, and that’s what we need to try to address.
HANNA BARRY: I sent out a tweet earlier today asking the twitter birds, as they are described, which areas they think are seeing above-average house price growth, and Itumeleng Warapedi tweeted back to me citing Diepkloof Extension in Soweto and Block DD in Soshanguve – a township just north of Pretoria. So I thought I’d do some research. We are going to get to that research, into the numbers of how some of those areas have grown.
We do have a caller on the line – good evening, Adelaide. Would you like to direct a question to one of our analysts?
ADELAIDE: Hi. Thanks for having me on the show. Some of the things that we are looking at are that we are trying to differentiate, we are focusing on differentiating between the new market and the resale market. And we are focused specifically on the affordable end of the housing market and particularly areas that have been overlooked in the past. We are seeing very different property trends when you analyse the new construction going on versus the sale of existing houses, which are the predominant housing products in some of the areas you are talking about. So I wanted to know if some of the information and some of the considerations that are going into the analyses are taking into consideration the very different behaviours of those two markets.
HANNA BARRY: When you say “we”, who is “we”?
ADELAIDE: It’s the Centre for Affordable Housing Finance in Africa.
HANNA BARRY: Well, there you go – Adelaide certainly confirming I think some of these views. What would you say, Adelaide, in terms of those different behaviours in terms of a first-time buyer or more on that affordable housing market – I mean, what are some of those distinguishing factors of that market’s behaviour?
ADELAIDE: Ja, I think one of the biggest factors that we are paying attention to is the equity value in the existing houses into the resell market. So when we talk about affordability constraints, one of the things we are looking at to fill that gap is the equity that’s available in some of those homes that have been built about 10, 15 years ago. They are the ones that are experiencing some of the greatest appreciation in metros across the country, the large metros. And the story is pretty consistent wherever we look. The equity is growing considerably because the value is growing in those houses which were either provided to the owners with no debt or because of the historical lack of lending in those areas. When we talk about affordability one of the things we focus on is the capacity of the home owners to unlock the equity by selling their houses and then move up the housing continuum.
What that depends on is lending to those existing houses. And lending in these areas has also increased quite a bit – not amongst the four big banks, but a lot of what we are seeing is the other lenders that are coming into those markets. And so those housing values go up because the buyers are able to get financing.
HANNA BARRY: And that for me is a very good point that you make. I was going to ask John about that. Are banks actually lending to this market, because it’s fine if there is demand, but if they can’t get bonds and mortgages then they can’t get property. Adelaide, you mentioned not the big four banks but alternative lenders. Can you name some of those lenders?
ADELAIDE: We put it all in one particular category that includes single loans, Investec, Integer, and then a thing called “other financing” which might in fact be seller finance. We are even working with some equity funds now that do employee housing and are looking to go into the big metros. So …acknowledge the fact that they’ve more flexibility because they are not a regulated lending institution, but they are finding these markets and they are going into the markets and they are moving the markets along.
HANNA BARRY: That was very encouraging. Thanks to Adelaide from the Centre for Affordable Housing Finance in Africa. She made some interesting points about the growth in equity in these areas, and that they are seeing some of the alternative institutions lending to these areas.
Now, the Centre for Affordable Housing Trust in South Africa with the Finmark Trust has developed the Citimark Dashboard – that’s a web-based dashboard that delivers local housing market intelligence. One of the interesting things I found – the latest data is unfortunately only to 2102 – is that in Soweto, which of course is the country’s largest township, average property values crept up 23% from 2008 to R276 000 in 2012, and the average sales prices grew in a similar region 19% from 2008 to R202 000 in 2012.
And I got some data from Re/Max just before the show started, to say that for a two-bed, one-bathroom house in Protea Glen, Soweto, around 45m sq, you can expect to pay this year R367 000 – and that’s already up from R320 000 last year. We are seeing increases across the board.
We do have another caller on the line – Orametsi in Secunda. Good evening, Orametsi.
ORAMETSI: Hi. … My concern with regard to the township booming market, if you can call it that, is going forward how can you avoid buying a property in a place that is going to depreciate in the long run, because I believe that some of the areas are not going to be able to sustain the people flocking into these areas in terms of their facilities and traffic, in terms of connection to the highways and all that. How do you avoid buy a property in this area where in the long run you are probably going to lose out with a property very depreciated because of overpopulation and stuff like that?
HANNA BARRY: I think that’s an excellent question asked by many, many home buyers. We are running out of time, but John, I’d like you to jump in here. How do you know where to buy?
JOHN LOOS: I don’t think there is a simple answer. Really, the good property investors know when to get in and they also know when to get out. The reality is once upon a time Hillbrow’s values in real terms were quite high, I guess, back in the eighties. And Hillbrow deteriorated quite substantially and the property values dropped quite radically. Now, one property owner couldn’t do a lot about that, except get out on time. You’ve always got to watch for the signs of deterioration of an area. The world over, areas go through cycles of rejuvenation and decay and one needs to just be aware of that.
HANNA BARRY: Francois?
FRANCOIS VIRULY: Just two points. As they say, it’s always about location. But the important thing in South Africa is that location changes.
And the other thing, if I want to give one bit of advice – follow the new transport routes, follow the My Cities of the world, the … of this world. In the next decade it will be about transport.
HANNA BARRY: Re/Max says the growth areas where they are seeing opportunity are in Soweto, Crystal Park, Dawn Park, Boksburg and Diepsloot.