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South African Property Trends, Past, Present and Future.

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The Past.

Most of the world experienced increasing personal wealth after World War II which continued for the following few decades.

The property market generally tags closely behind economic conditions so it’s not surprising that the South African property market performed well after World War II and continued to grow steadily until around 1970.

When we say grow, we literally mean property grew in size, by 1970-74 the average stand in South Africa was 1061m and the average home size was 203m.

This growth was promoted by the fact that the government at the time was investing a large percentage of GDP in Urban Development, 4-7%, resulting in urban areas growing steadily in size.

At the same time South Africa had a relatively low rate of Urbanisation meaning that land suitable for development was relatively abundant while demand was fairly stagnant resulting in land being freely available and affordable, so people bought bigger stands and built bigger homes, the average size of a Full Title home peaked at 291m with roughly 12% of all homes at that time being 5 bedrooms or more, remember that families were also larger then. Two bedroom homes made up less than 15% of homes by 1970.

Interest rates from World War II stayed low, starting at just under 5% and varied little climbing slowly before eventually breaking the 10% mark in 1974 and then climbing sharply in 1980. The last 30 years have seen more erratic interest rates, fluctuating sharply between a low of 9% and peaking twice at around 26% in 1984 and 1998.

In 1970 the South African property market was affected by two factors. The government could no longer sustain the high investment in Urban Development, it needed the funds elsewhere. The spending on urban development dropped to around 2% of GDP and was down to 1% in 1998, but has remained constant at around 2% since.

The 1970’s also saw a slow increase in urbanisation, which accelerated in the 1980’s as Pass laws began to fail and eventually disappear, by 1980 the urbanisation rate stood at 48% reaching 62% by 2010 and shows no signs of slowing.

This decreased spending and increasing urbanization led to the urban growth slowing, but more people wanting to live in the urban areas. Supply and demand started to shift from excess supply to excess demand.

The property market has two methods of correcting itself, Price and Size. The increased demand for living space saw property prices increase and properties shrink in size.

By 2010 the average stand size in South Africa halved to 524m and house size dropped to 146m. Smaller families saw two bedroom homes increase to almost 42% of the market and five bedroom houses drop to a mere 1.85%.

We also saw a shift from Full Title to Sectional Title to further improve land usage, full title homes made up 95% of the market in the late 80’s this has since dropped to around 75%.

Smaller homes meant that certain luxuries had to be dispensed with, homes built with Domestic Quarters dropped from 50% in the 50’s to 11% by 2010, swimming pools dropped from 40% in the late 70’s to only 9% in 2010. Homes built with Garages tend to fluctuate directly in line with economic conditions, during the 2000-2004 boom period 70% of homes were built with garage, this figure dropped to 52% in 2010.

What is interesting to note is that stand sizes have decreased by a greater margin than home sizes, seems people are more willing to forego garden space, but not so willing to sacrifice living area, In the late 60’s the average full title home used only 20% of the stand, by 2010 it’s almost 32%, sectional title properties will be much higher, this has also led to an increase in double storey dwellings that make greater use of available land.

The arrival of TV in South Africa, combined with the smaller homes has seen the virtual demise of the official dining room and an increase in the open plan kitchen/lounge/dining area which opens up to the external patio for the feeling of greater size.

The Future.

 We see no reason why current trends should not continue into the foreseeable future.

Rising Property Prices & interest rates, ever escalating basic costs, electricity, water and rates combined with continued urbanisation and lack of urban development will continue to drive demand for smaller more intelligent and energy efficient homes, preferably close to amenities and transport.

Smaller properties will see an increase in the adoption and design of space saving multi-purpose living areas, technology is enabling more people to work from home, areas that served as an office during the day could quickly be converted to serve as a dining/entertainment area at night, or a lounge that cleverly converts to a bedroom in minutes, we will also see improved use of space with the full volume of a room being utilised as opposed to just floor area.

There will be increasing demand for homes with lower running and maintenance costs. New building regulations are already forcing developers to consider energy efficiency in new builds and it’s about time.

Traditional South African homes have not been built with our climate in mind. Summers can be extremely hot and it can get pretty cold in winter, the cost of heating and cooling our homes by traditional expensive methods has become unaffordable for many. More intelligent layout, design and insulation can greatly reduce these costs and make our homes more comfortable.

We predict that we will see increased desire for self sufficiency as faith in traditional service providers to provide basic services reliably and economically continues to decline.

There will be an increase in demand for alternative energy systems and energy efficient appliances, South Africa is truly blessed with an abundance of natural solar radiation and we see this being harnessed to a greater degree for heating and power generation as solar technology improves and becomes more affordable. Why pay monthly for something the sun can provide for free.

The impending water crisis and rising costs of water may to a lessor degree see reduced reliance on municipal water supply with the installation of bore holes, water tanks, grey water systems, maybe even full re-cycling plants, at the very least it will make large thirsty lawned gardens and fire pools, oops sorry swimming pools, less desirable.

We will see more rapid adoption of “Automation” technologies within our homes, these systems are becoming more affordable, easier to install and operate through our existing smart phones and tablets, we are already seeing many “smart” appliances on the market. These systems not only offer enhanced lifestyle benefits, but can also improve energy efficiency and security by constantly monitoring the environment and reacting accordingly.

The demand for more secure fully integrated “mini villages” offering schools, shopping, social and other essential amenities within walking distance and close to public transport will continue to rise driven by a need for greater security and reduced desire to commute.

The younger generation does not view car ownership as desirable as the previous generation did, cars are expensive to own and run, even the cheapest car in South Africa with moderate usage will cost between R 4000 to R 5000 a month that’s a lot of money when you consider that the average wage in South Africa is currently just under R 15 000 per month.

A car also requires a secure parking space or garage which is, space that can be better utilised for living purposes. This trend could already be seen in many other cities in the world.

We are definitely entering what can only be described as an interesting period in our countries history and the property market will directly reflect our social and economic adaptation to these changes. Our homes are after all a reflection of us, both as individuals and as a country.

The only thing, we can predict for sure is that the rate of change will continue to accelerate and it’s the property industries challenge to keep up with these changes.

South Africa is not unique in changing property trends or requirements over time, property trends change globally all the time in line with fluctuating economic conditions, generational needs and changing lifestyle demands.

South Africa does however have some unique conditions, or reasons, that have played a large role in changing property trends.

space saving bedroom designs dual living space house with solar panels.

The Present

The current South African property market is in a state of flux, there has been some price correction following the 2000-2004 boom as a result of the 2007-2008 recession, but a true correction is being held at bay to some extent by unusually low interest rates, it’s believed that property prices are still over inflated, but the current low interest rates are unsustainable, we are already starting to see interest rates slowly creep up again. It is predicted that interest rates will continue to climb back to levels that reflect the true condition of our economy. Higher interest rates should result in house prices settling on more realistic levels, but will in turn increase the cost of financing.

Urban development will remain at low levels as the government requires additional funding to finance the upgrading of basic services that have suffered from decades of neglect, we are all fully aware of the challenges our country is facing in terms of Power, Water and other inefficiencies. These issues are in turn leading to subdued economic growth, an economy simply cannot grow under conditions were even current needs cannot be met. The resulting increases in basic commodity prices not only directly affect inflation, but also add to the overall cost of property ownership.

In spite of lack of urban expansion urbanisation is continuing unabated leading to greater urban densification. Anyone who has lived in our cities for any period of time will attest to the increased levels of traffic congestion we are experiencing. The simple task of getting to and from work has become a major issue and frustration for many, to own and run a car is expensive and does not solve the traffic issue, current public transport is insufficient to relieve this congestion.

The younger, professional, generation are making different lifestyle decisions to the previous generation moving out of the suburbs and rather opting for smaller homes or apartment style living in or close to the city centres within easy access to work and other amenities, foregoing the expense of a car and the frustrations of commuting, rather investing that money into their location and getting around on foot or public transport. Dropping fertility rates, the younger generation are having smaller families and waiting to later in life to start a family, this is further driving this trend for smaller homes.

This trend has resulted in the inner cities and adjacent areas under going extensive rejuvenation, previously dilapidated areas are becoming yuppie play grounds with quality one or two bedroom apartments easily fetching R2m-R3m or more. More upmarket developments offer a complete lifestyle solution with onsite gyms, swimming pools and other modern technologies and luxuries. Those not fortunate enough to be able to afford these inner city properties will seek similar properties further out, but close to public transport routes.

Items that were considered important by the older generation are considered obsolete by the younger generation, dining rooms are out and home offices are in. Swimming pools are out and home automation is in, large size is out and energy efficiency and low maintenance are in. Security has become a major consideration for many home buyers, not only in what security features a specific home offers, but also the perceived safety levels of the area.

The current conditions are causing some interesting social effects. The relative un affordability of property combined with the need to have a 10% deposit is resulting in first time home buyers taking longer to get into the market. The average age of a first time buyer in South Africa is now 34 as opposed to 29 a few years ago, this means that the younger generation are staying at home longer and the older generation are not able to downgrade from their “empty nest” until later.

We are also seeing an increase of what is referred to as the “Sandwich Generation” those who still have the kids at home and now also have their parents staying with them. On average South Africans are now staying in the same house for longer reducing the churn rate and resulting in a lack of stock on the market in certain areas.

property prices over valued property.

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House price versus disposable income.

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Property value graph over the last 50 years.

v&a waterfront cape town

The V&A Waterfront is a prime example of Urban Rejuvenation.

Traffic congestion affecting property buying behaviour.

Increasing traffic congestion is affecting buyer behaviour, with proximity to work and public transport becoming a factor.

Smaller living areas will require more effective use of space with areas serving multiple purposes and making greater use of volume as opposed to just floor space.

Basic commodities have become expensive and supply unreliable. Energy efficiency and alternative energy sources are already becoming an important selling point for homes, we foresee this trend increasing.

energy efficient home.