Property platform: the road ahead for South African real estate in 2014
Lively debate and workable insights were brought to the table at the second Property Platform held in Cape Town on 1 November 2013.
Property experts Adrian Goslett – chief executive officer RE/ MAX of Southern Africa, John Chapman – chief executive officer Rabie Properties, Laurie Weiner – managing director Pam Golding Properties Cape Town/Atlantic Seaboard, and Samuel Seeff – chief executive officer Seeff Properties, with a collective 70 years of South African real estate industry experience, provided depth to market indicators that may spring surprises, create expectations, rise hopes or set new trends.
Although political stability and the reduction of violent crime topped 2014 agendas, consensus prevailed that a robust economy will sustain consumer confidence and fuel positive sentiment, both at home and abroad.
Most notable is the anticipation of new market trends impacting sales, rentals, as well as new development. A marked reduction in turnover of luxury free-standing properties in top-end suburban areas is directly linked to increased demand for large sectional title units in secure surroundings.
The sustaining of market growth will depend heavily on government’s management of upcoming elections, as well as co-operation at business and institutional levels to achieve greater industry regulation and sound implementation of transformation processes. Industry is calling on government for the release of more vacant land across all segments of the market.
South Africa’s vigilant banking sector will continue to add value in an economy currently facing challenges such as unprecedented consumer indebtedness in the midst of the newly approved credit amnesty and improved lending conditions.
Possible stumbling blocks to overcome in 2014
While cautious optimism for a healthy 2014 was expressed by Weiner, she says high demand for good stock in recession-proof, quality residential nodes continues to drive stock shortages. Although consumer confidence and prudent cash selection processes at the top end of the market indicate positive growth, the leisure market continues at a slower pace. Goslett says that while stable interest rates remain vital to economic stability, consumer confidence is affected at every level. Investor uncertainty resulting from political instability affects the emotional-based decision- making processes of buyers. However, stimulus across all industry sectors will impact positively to counteract these factors.
The market remains sentiment-driven and, as a result, stronger economic fundamentals are needed to fuel and sustain growth in South Africa’s Gross Domestic Product, says Seeff. Investors ready and waiting to participate in the local economy are more likely to return to the market once last year’s high levels of ‘buyer fatigue’ are reduced.
Chapman says greater focus from government on service delivery issues, as well as the unlocking of sufficient land for development, is crucial for a positive knock-on effect on the economy. Issues such as infrastructure planning, land scarcity and the potential impact of unresolved land restitution and related issues need urgent attention.
Industry regulation and transformation
All round agreement was expressed for increased regulation to solidify the basis of the industry, which will attract a high calibre of operators and graduates to uphold industry standards.Seeff says that current barriers to entry are placing unnecessary strain on the real estate industry, and ideally the property transformation charter should be re-investigated to ensure compliance at all levels, which admittedly will be an onerous process.
He says as legislation and greater compliance is exercised, smaller real estate companies will move towards bigger brands. Large companies are increasing their market share as the result of infrastructure and expertise to support small operators. A current trend expected to continue is smaller agencies, with a preference for focusing on what they do best, possibly joining skilled players with the means to provide good operational controls.
The supportive role of South Africa’s banking sector
All round discussion highlighted the fact that stringent lending criteria by local banks is inclined to draw unnecessary criticism from the property sector, despite South Africa’s banks continually holding down top international rankings.
Seeff says that compared to the instability seen at global banks, South Africa’s banks are doing a reasonable job considering that local market conditions do not allow the easy build-up of deposits for 50% of home loan applicants who are first-time homebuyers.
However, both Goslett and Weiner are of the opinion that banks should place greater focus on positive lending criteria for entrepreneurs and self-employed mortgage applicants considered high risk applicants but who have less ability to prove their credit worthiness.
Chapman says that from a developer’s perspective, although South Africa’s banks are regarded as top class, improvement of efficiencies both at banking and government levels will help aid property interventions to boost markets.
Demand for housing close to infrastructure and good schools setting new trends
Added value is derived from good schools within close proximity of residential areas, public amenities and community centres. Goslett says
although a good education for offspring is largely an affordability issue, superior quality schooling is valued throughout different income and cultural groups. Families with young children determine their choice of schools prior to selecting a residential area and, as a result, buyers are increasingly lured by close proximity to security estates.
New trends show that potential buyers and tenants are more inclined to settle where schools are within safe walking or short commuting distances from home. Chapman says that all-round solutions, such as good infrastructure and increased land allocations, should be found to cater for educational needs, from entry level and low cost housing, through to the top end of the market.
For Goslett, market trends are indicating that commuting to overcrowded schools remains problematic, which is further cause for increased development of both state and private schools closer to communities, where tangible investment returns are possible.
While the affordability of mortgage repayments are affected by high private school fees, Weiner says long waiting lists at both public and private schools filled to capacity in quality locations reveals a calling out for the freeing up of open land for more housing and school developments. She says a 20% price increase as the result of greater demand along the Atlantic Seaboard with several good schools was seen last year for larger three-bedroom sectional title units in good areas, as opposed to two-bedroom units previously most in demand.
However, Seeff feels strongly that private estate lifestyles come at a premium. He says high levels of violent crime is the main motivating factor behind families now prioritising good and safe schooling in luxury gated communities. A decline of luxury housing on large plots in top-end areas with numerous excellent schools, such as Cape Town’s southern suburbs, is increasing. A need for greater security is seen among owners of large properties in upper Constantia and Bishopscourt, where wealthy households are moving away from paying high municipal taxes, maintenance and security costs. As a result, this area currently offers best value for money in the Cape Town market.
Chapman says that this trend has seen the combination of new property development at Century City with affordable private schooling through Curro Holdings, which has done a detailed analysis of the market. This model includes a number of unique solutions, such as the use of sports fields to facilitate secure open spaces for leisure purposes as the result of the development of residential nodes around school grounds.
Another high demand areas also illustrating convenience and security is seen at Waterfall Park in Midrand, where Reddam House reaching capacity within the first year has resulted in negotiations under way for a second school nearby. Weiner says growing demand for property in Table View has been supported by the establishment of Parklands College in the area. Significant growth is seen along the Cape West Coast with growing numbers in enrolments at the West Coast Curro School. The coastal town of Langebaan has seen increased Seeff property sales of 53% in the past year, which is setting the tone for significant growth as development around the Saldanha Bay Industrial Zone gains momentum.
Densification of residential areas
Greater densification of residential areas by councils will facilitate South Africans moving to a denser style of living where shared services can be achieved. The functional utilisation of large erven in luxury suburbs can have far-reaching benefits. Seeff says that the time has come for public participation processes that will enable the amendment of current municipal laws against subdivision. Although more housing in smaller suburban pockets will require a shift in sentiment as demand for large properties declines, current trends show greater demand for smaller houses in secure surroundings.
However, the property development industry as a whole remains heavily dependent on shortages of correctly zoned land that offers development rights. Chapman says that lengthy application and approval processes, which are costly to the industry, exacerbate already tough conditions for landowners and developers, who are ready to produce more housing solutions.
According to Seeff, as consumer confidence feeds off political stability, peaceful elections will impact positively both on existing as well as developing markets. Meaningful investment into the country is still awaited, as seen in municipal statistics showing no real growth in the number of plans submitted compared with real growth during 2007/8. He says that while more developers need to come to the market, they require access to capital to cater for the growing demand for housing in South Africa.
From a developer’s perspective, Chapman says that early indicators of positive market sentiment in new developments as seen last year are continuing. Renewed interest is seen in an uptick in the number of buy-to- let investors returning to the market, who favour smaller yet modern units in good locations, within secure private estates and developments. Small operators who survived the global economic crisis are now able to rely on operational structures to support continuity and capitalise on niche areas. As a result, they are better equipped to anticipate future surprises, such as Rabie moving between commercial and residential property during tough markets.
Best investments for the year ahead
These will depend on buyers’ priorities, such as owner-occupied, speculative or buy-to-let purchases.
Buying more units at lower values produces higher returns, while large units usually offer lower return values, says Weiner. She says that ultimately capital growth is vital, and since investment periods are directly linked to growth, investors should prioritise either long-term growth or short-term returns, such as rental income of buy-to-let purchases.
Goslett says that while rentals play an important role across different market segments, such as the grooming of potential first-time homebuyers, the clichéd principle that buying well in a good location brings long-term returns applies across the board. Although not strictly viewed as investments, purchases made out of necessity, such as buying a primary home to facilitate schooling for young children, retirement or security, can bear long-term returns. He says family purchases close to public amenities make better choices than buying houses in small country towns, unless local economies are propped up by mining investment. Urban trends of investing in mixed-use developments are indicative of a growing need for consumer convenience and security in contained areas, says Chapman. The revival of city precincts is further enhanced by minimal commuting distances, technological advancement, educational and tertiary institutions, as well as retail and entertainment facilities. This is also supported by a growing demand for quality space in sectional title offices close to home, as seen at Century City, where small businesses are buying office units to cash in on reduced commuting times and costs.
Investors should prioritise capital growth alongside the choice of whether to control investments passively or actively. Seeff says that ideal combinations can be found within well-located nodes that are not considered prime, but will offer long-term capital growth as well as good initial returns. Long-term growth is achieved as investment flows into those areas, such as purchases within the vicinity of Sandton but not in Sandhurst itself, or in Woodstock as opposed to Cape Town CBD itself.
2014 “Wish lists” for the South African real estate industry
Chapman: “Improved service delivery at municipal levels to reduce costly time delays as well as government’s release of more land for development.”
Goslett: “Similar market conditions as during 2013, ideally with sustainable increase in prices and growth, supported by banks viewing business from a sales and not only risk perspective.”
Seeff: “Ideally a combination of interest rates staying at the same level with peaceful elections to impact positively on the economy, and less labour unrest.”
Weiner: “A sustainable change in sentiment as the main driver of confidence, coupled with positive political factors.“
A productive overview of 2014 trends and prospects brought lively discussion to a close with best practice advice.
“The real benefits associated with homeownership cannot be quantified.” The group concluded that property ownership of smaller rather than larger homes is beneficial to the greater majority of South Africans. True value is derived from a balanced financial lifestyle, irrespective of whether consumers honour monthly payments for mortgages or rentals.
By Anna-Marie Smith