Run on numbers: State of residential property 2023
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1. The Centre for Affordable Housing in South Africa states that there are 6 738 520 residential properties on South Africa’s deeds registry, valued at approximately R6.26 trillion. This compares to the total market capitalisation of the Johannesburg Stock Exchange of approximately R7 trillion. (Eight years ago, it was double this amount).
According to a recent household survey, there are 62 000 000 residents in the country with an average household size of 3.4 people, thus, there are an estimated 18m households in South Africa.
It must therefore be assumed that the remainder of the population is housed in 11 000 000 homes, which is not on the national Deeds register. According to the 2021 General Household Survey, 11.7%, or approximately 2 million, live in informal dwellings.
That leaves us with at least 9 000 000 homes that are not on the register. The value of the houses at a moderate estimated average value of R250 000 per unit equates to a total value of almost R3 trillion, and it brings the total value of residential property in South Africa to R10 trillion.
This is not a healthy situation because there are so many properties not of the deed’s registry, not only for the owner nor for the municipal authority that delivers a service but cannot bill, not even at a nominal amount.
It is something that is not sustainable as is evident in the state of our municipalities. How is it possible in this day and age where we know how to digitise information that the Deeds Office and the municipalities, including Eskom and the Water boards, do not share a common database?
2. The rental market. An estimated 19% of all people live in rental dwellings.
Inflation is not the friend of people who need to rent their homes. If salary increases do not compensate, they find themselves short, not even to speak of those who have no jobs. The table below illustrates the position over the last six years.
According to the TPN Renal Monitor for Quarter 3 2023, “There has been a shift in the percentage of tenants categorised by the various rental value bands.
Most tenants are paying between R3 000 and R7 000 per month, with 50.3% of all tenants in the third quarter of 2023 falling into this category, down from 50.8% in the previous quarter.
The average number of tenants in this value band during 2021 was 54.5%, and in 2020, 55.4%. This is the result of unabating rental escalations following the general inflation trend.
3. The types of Residential Properties, and ownership detail by race.
In a study posted in 1017 by Superlinear, they concluded the following:
* Black South Africans are more likely to own their property than any other race group, while white South Africans are least likely to own theirs outright.
* White South Africans are most likely to still owe the bank for their houses, while very few black South Africans appear to have a bond; perhaps pointing to alternative arrangements that do not rely on financing their homes, likely due to both cultural reasons and a historical lack of access to formal financing.
* Indians and Asians are the most likely to rent their property.
4. Resale value.
Transactions are good indicators of a property market’s activity and health. While there were 6.7 million properties in 2021 in South Africa, only 270 156 transactions (new and resale) were recorded; most of which were in the conventional, high-end, and mid-luxury markets.
The least transactions were in the entry market segment which is telling of an underserved market.
Value is very dependent on marketability as aided by liquidity within a market.
The time to sell a house is a good indication of reliable estimates of value. If it takes on average longer than three months to sell a house valuations become more unreliable.
The collateral value that a bank can place on a house depends on the activity of sales in a particular area.
The development of a secondary sales market in houses is a precondition for rural areas to participate in the utilisation of the equity in a house to obtain a loan against a mortgage bond.
The national average yields for full title properties improved from 7.25% in the second quarter to 7.31% in the third quarter.
Sectional title property yields improved marginally from 10.47% in the second quarter to 10.49% in the third quarter. This is not an unacceptable yield for a developer provided he can deliver a sought-after product at the right rental.
5. In a book titled: “Securing Land Tenure in Urban and Rural South Africa” (ed. Hornby, Kingwill, Royston and Cousins, UKZN Press 2017), the authors estimate that in 2011, around 60% of South Africans held land or dwellings outside the formal system.
The authors further point out that: “5 million people lived in RDP houses with inaccurate or outdated titles, in most cases due to transfers outside of the formal system.
“Another 5 million lived in RDP houses where no titles had yet been issued due to systemic inefficiencies. Along with 1.9 million people in backyard shacks, 2 million on farms belonging to others, and 17 million in communal areas. This means that in that year, around 30 million people, nearly 60% of all South Africans, lived on land or in dwellings held outside of the cadastral system.”
The Centre for Affordable Housing in Africa suggests that, “beyond the delivery of subsidised housing, a key opportunity exists in the residential resale market, where resale market prices are often for values lower than what is available in the new build market.
“Leveraging the potential of the resale market depends on resolving the title deeds backlog and addressing the incidence of informal transactions, both of, which undermine healthy market functioning and constrain transaction values.
“Intentional and targeted transaction support and title deed restoration efforts are needed. This would also increase municipal revenue.”
What the residential property market needs is some air to breathe, it is just a jump to the left and a drop in interest rates of three percentage points during 2024.
It is an election year, Mr President, have a friendly chat with Lesetja Kganyago and bring us some relief.
We won the World Rugby Cup, we won the first leg of the Rugby evens once again in Dubai, and our ladies are looking good on the soccer field, and the cricket field.
* Kruger is an independent analyst.
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