Residential Real Estate Market in South Africa - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)

Residential Real Estate Market in South Africa - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)

South Africa is Africa’s second-biggest economy, with an estimated population of 57.7 million and an estimated GDP per capita of USD 6,377 in 2018. As South Africa’s economy has exited recession, there is optimistic sentiment in the residential real estate market. South Africa’s residential real estate market is the largest component of the South African property market, comprising most property assets within the country, and an important component of household wealth.

During Q1 2019, while South Africa´s nominal house prices rose by 3.96% when adjusted for inflation, house prices again declined by 0.51%. This reflects pressure on household incomes and an oppressed macroeconomic environment.

Many households in South Africa are under a financial strain, because of slow economic growth, low employment levels, and high-interest rates.

The expected house prices are likely to remain confined within the 3.5% to 4.5% range for an extended period, which is below the banks’ annual inflation forecast of 4.7% in 2019.

There are several opportunities in the sector, which are brought about by high demand for student accommodation and gated communities, and urban renewal and regeneration projects. But low projected growth rates and a slowdown in economic activity can limit expansion and new development.

Key Market TrendsIncreasing Demand for Sectional Title Living in South Africa

South Africans buying freehold homes has been steadily decreasing, with buyers opting for sectional title and estate homes instead. Increased security, affordability, and the communal lifestyle are all alluring aspects when potential buyers consider sectional title properties. The definition of a sectional title unit is a property in an undivided share of common property. These units are known as townhouses, flats or apartments, and duet houses.

A slow decrease in the purchase of freehold property has occurred Y-o-Y and estate purchases have remained consistent, along with the growth of sectional title property of up to 5% in these years.

Affordability is a further factor favoring sectional title. For example, of the 12,603 sectional title properties sold in Johannesburg last year, 45% were priced under ZAR 800,000, while a further 40.1% were priced between ZAR 800 000 and ZAR 1.5 million, and only 191 units (1.5% of the total), were sold for more than ZAR 3 million.

The sales of sectional title properties aged 30 to 39 years outperformed in terms of average property growth per year, at 4.7% to other age bands of properties.

Rental Prices Growth in South Africa’s Provinces

The current situation is with high vacancies and low escalations across most of the country, fueled by lower than normal demand in 2019. Historically, the rental demand increased during tough economic times, but this is not happening currently. The data shows that few people are entering the rental market, and the majority of those that are, rent for less than ZAR 7,000 per month.

Most provinces saw low rental growth and a deterioration in the average tenant’s financial situation from 2017 to 2018. Below-inflation income growth has also made it increasingly difficult to keep up with debt and other costs.

The average Western Cape rent surpassed the ZAR 9,000 mark during 2018, making it the most expensive province to live in, with an average price differential of nearly ZAR 1,000 compared to the second-most expensive province.

In Gauteng, the average rent breached ZAR 8,000 for the first time in Q4 2018. This was 4.84% more than the 2017 rentals and the third-highest growth rate in the country for the quarter. While this rate was lower than the year before, it was the province’s first increase in quarterly growth in two years, which may signal the beginning of a recovering rental market in the province.

Competitive Landscape

The residential real estate market of South Africa is fragmented with the presence of various indigenous players in the market. Most of the real estate companies see some of their biggest sales from properties in the Western Cape. Property development is not showing signs of slowing down, but developers are struggling to increase occupancy rates due to oversupply. Major players in the residential real estate sector are Pam Golding Properties, RE/MAX of Southern Africa, Seeff Property Services, and Harcourts Real Estate. Profiles also include developers RDC Properties, WBHO, and Renprop.

Additional Benefits:

• The market estimate (ME) sheet in Excel format
• 3 months of analyst support

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