South Africas Property Market Continues to Grow

South Africas Property Market Continues to Grow

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South Africa - Johannesburg

South Africa’s Property Market Continues to Grow – Despite Economic Pressure Against It

The South African economy has given observers cause for alarm lately. After the downgrade by international ratings agencies there were waves of strikes and rumours of a looming recession.

Platinum workers staged a three-month walkout from the country’s mines and the 220,000-strong engineers’ and metalworkers’ union has voted for strike action just as the platinum strikes were being resolved. Add in rising debt and a weak currency, political uncertainty and a youth unemployment rate that’s officially 36% – but may really be 50% or higher – and you should have a recipe for a crumbling housing market. You should see housing suffer as buyers keep their money in their pockets, vendors settle down to improve, not move, and the construction industry waits it out, reducing market exposure until there’s demand for new stock again.

But data from Statistics SA’s General Household Survey 2013 shows a more positive picture, with the housing market a key component in South Africa’s economy – and looking brighter even as the clouds gather over the rest of the country.

According to those stats, the percentage of people who fully owned their own homes in South Africa, the distinction of ‘formal dwellings’ is made to distinguish them from the many temporary structures that still remain – increased from 52.9% in 2002 to 54.9% in 2013.

Meanwhile households that partially own their own homes have increased by 4% during the same period. ‘In essence, the data reveals that more South Africans now live in properly built homes than ever before, indicating that the standard of living has not only improved, but the property market has grown,’ says Bruce Swain, managing director of South Africa’s Leapfrog Property Group.

The FNB Estate Agent Survey for the second quarter of 2014 supports this, indicating that ‘first time buyers [are] a still-strengthening source of residential demand,’ despite a jump in interest rates in January this year, Mr. Swain says.

South Africa’s property market has to deal, too, with a sharp hike in electricity prices hitting potential buyers in the pocket. The increases came into effect on July this year, and they will see around 7% added to the electric bills of residents of all South Africa’s metro areas.

Weighed against this, the repossession rate has remained steady since its jump of five points earlier this year, and it’s likely to remain level into 2015, experts believe. Partly that may be due to the South African development model, which shows demand-led developments with little speculative construction and a large pool of residual demand to draw on. Further, the low yields – around 5% on prime property – offered by the South African market discourage investor activity, meaning most people who are buying a house in South Africa plan to live in it.

Mr. Swain points out that ‘our agents are reporting stock shortages as the biggest hindrance to selling, so while home owners of second properties, in coastal or country areas, may come under pressure, it seems that the market is slowly edging forward regardless of the economy and price hikes.’