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Affordable property booms on stock shortages

June 8, 2014

South Africa’s growing middle class segment continues to create a robust demand for affordable housing solutions, yet there seems to be a shortage of available stock.

Affordability remains a key contributor to the growth of affordable housing properties, creating a market where demand outstrips supply and property prices outperform all segments.

This can be seen in the growth of former black townships, defined by FNB as “low income property”, with an average value of R295 800, having grown in the first quarter of 2014 by 10.7% year-on-year, from a revised 9.4% in the previous quarter.

In the bank’s latest property barometer, middle income areas represented by an average property value of R1.27 million recorded growth of 6.7% and lower-middle income areas with an average property value of R811 348 grew by 6.1%. And the upper income areas boasting average property value of R2.1 million showed growth of 5%.

The rapid growth of former black townships says FNB household and property strategist John Loos, has also been driven by not only affordability but that properties in these areas are still the preferred location.

“There is a portion of people who choose to stay in the community, which keeps the popularity of townships. There are also better facilities,” Loos told Moneyweb.

On the property shortages front, Nedbank’s head of affordable housing development finance Manie Annandale says the private sector plays a role in identifying and supporting developments.

He says the Nedbank’s affordable housing development finance unit disbursed more than R1 billion towards new affordable housing developments across South Africa in 2013, with more than 12 000 new home opportunities created.

According to the International Housing Solutions social impact study released on Friday, “massive urbanisation” is constantly adding to housing supply backlog. In 2012, the study notes that the housing backlog stood at 2.1 million units. Adding to the backlog is Gauteng’s population which could grow by a further 10 million over next three decades.

Investment into Soweto property

Experts single out Soweto as an example of the growth story of affordable housing, where limited stock available is seen mostly for two or three bedroom properties of 200 to 250 square metres in size.

Executive director at Leapfrog Property Group Kura Chihota, says Soweto as an investment offers value for money with a variety of property options for different house price appetites.

There is also a rush for affordable housing in Soweto by those who have left the township for northern suburbs – who are returning to the township to take stock of attractive properties.

The Centre for Affordable Housing Finance in Africa, which develops a housing Performance Index says parts of Jabulani, Pimville, Slovoville and Diepsloot are growing faster than cities overall. Its coordinator Adelaide Steedley says the growth of townships and affordable housing markets are driving the urban housing market.

Recovery after the recession

Things were not as rosy for the low income property market, which is largely credit dependant. Loos says when the 2007/8 global financial crisis was in full swing, the market took a dip.

Despite the constraints seen a few years ago in this market, it has recovered better than other property segments. However, the imminent interest rate hikes this year by the South African Reserve Bank are set to dampen the growth of this market.

Access to credit for consumers of low income properties is still a challenge, as property transactions have grown while access to bonds has dropped.

“One of the things we note and see on a regular basis is how access to finance can sometimes constrain markets that would otherwise be booming. These markets would be booming if the appropriate financial products were available,” says Steedley.

Is the growth seen in affordable housing just a property phase which will fall short of sustainability? Most property pundits agree that growth is sustainable, but depends on matching the right property solutions to buyer’s needs.

“Different neighbourhoods require different housing stock, families need different financing options. The key point is to match the right solutions to the right demand, which is requiring a more nuanced look at housing markets,” she says

Story by Ray Mahlaka
Source: Moneyweb

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