Ricochet News

Strong Lower-Segment Property Price Growth Drives Growth In Higher-Value Categories

MARCH 27, 2015
Strong Lower-Segment Property Price Growth Drives Growth In Higher-Value Categories

Aspirational South Africans want homes that reflect their success; banking activity reflects a positive market

Luxury lifestyle estates are increasingly benefiting from a growing number of buyers moving up into the higher-value markets. Estimates reflect around 318 000 residential properties within secure gated communities, with a combined value of R643 billion at an average of R2 million per property (almost three times more than the national average of R700 000 per home). Fifty percent of these are in Gauteng and 25% in the Western Cape.

This was some of the information shared yesterday morning at the debut Lightstone Overview of the Property Industry press conference held at Pearl Valley Golf & Country Estate outside Paarl in the Western Cape.

Forecasting in 2014 a year-on-year house price inflation figure of 6,7%, property-specialised risk management company Lightstone reported an actual price growth rate of 6,72%, with a steady performance in the higher-end markets throughout last year.

The value of price growth was its highest since the 2008 subprime mortgage crisis, with low-value price growth leading the pack by just under 30%, followed by mid-value, high and luxury.

The ongoing demand for more formal housing throughout South Africa has driven the strong price growth in the lower- to middle-segment markets.

And, adds Paul-Roux de Kock, Analytics Director for Lightstone, “Growing demand in the lower-value markets has a longer term positive impact on the high-end categories. South Africans want to grow, to increase their net worth, and ultimately to afford that dream home that offers all the benefits associated with success.”

Sales of Pearl Valley’s newly released developer erven is mirroring this trend, with a growing demand among younger buyers for freehold stands which allows them to establish their dream country home for the first time. For the period March 2014 to February 2015, more than 51% of buyers fell into the 36- to 49-year-old (‘middle-aged’) category, compared to 31% in the 50- to 64-year-old (‘mature’) category.

“Factors such as our state-of-the-art security, scenic winelands setting  and proximity to top schools and Cape Town, is driving more young families to invest in our estate,” says Gawie Marx, General Manager, Pearl Valley Golf & Country Estate.

Although price growth forecasts are pegged at 7,2% for 2015 for a potential high road scenario where GDP grows more than expected, a demand for security in the face of deteriorating crime statistics, and aggravating factors such as labour unrest, will pose the biggest threat yet to the property market, as these reduce the purchasing power of buyers and bank risk appetite in the low- and mid-value markets. Lightstone therefore forecasts a more realistic residential price growth of around 5.8% for 2015.

De Kock says he’s “cautiously optimistic” about what this year holds for the South African property market.

“South Africa’s challenges are complex and require a cohesive approach and solution, given that one has a direct impact on another,” he clarifies.

“That said, the market is positive and banking activity reflects that.”

In the higher-value markets, around 60% of property transactions are bonded, with over 85% of bonds granted being for primary loans as opposed to further advances or switches. Average mortgage-lender loan-to-value of primary bonds range from 82% to 93%, depending on the bank, with deposits of between 7% and 18% required.

Newly registered bond values peaked in the second and third quarters of last year, at their highest since the 2008 subprime crash, with Standard Bank of South Africa, the development shareholder of Pearl Valley Golf & Country Estate, financing in excess of R9,5 billion, followed by FNB with just over R8 billion and ABSA with just over R7 billion.

“We realise the enormous financial and socioeconomic benefits that a stable development like Pearl Valley can have not only for its residents and potential buyers, but for affiliated communities connected with real estate, golf or tourism,” comments Marx.

“We are pursuing this through the rollout of our Master Plan, which includes the establishment of a super-luxury hotel by the Mantis Group comprising 80 rooms and other estate development projects such as the expansion of our equestrian centre”.

Illustrating the investment stability of secure estate living, 47% of owners at Pearl Valley fall within the ‘mature’ category, closely followed by 40% in the younger ‘middle-aged’ category.

“Investors are staying,” Marx explains. “Once they’ve built their dream home and are enjoying the benefits of secure country living, the winelands lifestyle and seeing their children educated in top-end schools, the chances of them selling are minimal.”

44% of the Estate’s residents were existing owners for more than 5 years, with at least 10% of the total residents figure being owners for 11 years and more.