South Africa’s Slipping Housing Market

Reports indicate declining house prices in South Africa, ending 2011 2.6% lower than the previous year. This is a sharp departure from the country’s boom years prior to …

Reports indicate declining house prices in South Africa, ending 2011 2.6% lower than the previous year. This is a sharp departure from the country’s boom years prior to the global financial crisis that began in 2007, when a surging middle class and growing GDP helped boost house prices as much as 20% from 2000 to 2006. South Africa’s hosting of the World Cup in 2010 brought a slight reprieve, but lower infrastructure investment, rising interest rates, an unpredictable economy and other risks are undermining future prospects. Rising unemployment and an uncertain political climate are other threats to growth, with the country’s current leader weathering corruption charges while every segment of the housing market suffers. For more on this continue reading the following article from Global Property Guide.

South Africa’s property market has slowed, with house prices declining modestly in 2011. South Africa’s house prices rose 2.3% in nominal terms, which translates into a decline of 2.6% in real terms, a disappointment following 2.7% house price rises in real terms in 2010.

Long gone are the amazing boom years from 2000 to 2006, when house prices rose by an average of 20% annually.  Riding on the back of an empowered middle class, the house price rises peaked in Oct 2004 with 35.7% growth (32.5% in real terms).  Then in Q1 2008 the boom ground to a halt, following the global financial crisis.  

By early 2010 house prices were briefly surging again, encouraged by South Africa hosting the 19th FIFA World Cup.  But they stalled again due to lower economic growth, rising inflation, and political corruption concerns. 

ABSA predicts that average house prices will rise by around 2-3% in 2012 but, given continuing increases in inflation, house prices are now falling in real terms.

South Africa’s GDP needs to grow significantly, before the real estate sector sees convincing growth.  “The (property) market is moving slowly and prices are under pressure, but there is still activity,” says Samuel Seeff of Seeff Property Services.

Key risks to South Africa’s housing market:

  • an uncertain economic recovery
  • declining infrastructure investment
  • more housing supply than demand, thus falling rental yields
  • financial pressures on households
  • rising mortgage interest rates, to counter rising inflation
  • political concerns, as president Zuma turns up the populism

Looking back at the glory days

During the glory period from 2000 to 2006, South Africa’s housing market boomed, driven by 4 main factors:

  • The emergence of a financially stable black middle class had a tremendous impact on housing demand, encouraged by tax reliefs for individuals, in the context of a growing economy.
  • South Africans who had parked money offshore during the Apartheid era were allowed (and required) to bring it back by September 2004. Much of this money went into property.
  • Better stability and security helped. During Apartheid and its sequel, property prices badly lagged the economy, as the security situation went from bad to worse.
  • Lastly, the Financial Sector Charter in 2003 boosted mortgage loan growth. Financial institutions committed to provide ZAR 42 billion (US$5.45 million) of housing finance to the low income market. Then in 2006, the CGT exemption on primary residences was raised from ZAR1 million (US$127,129) to ZAR1.5 million (US$190,694). Transfer duties on properties were lowered too.  For example, no transfer duty is payable on properties valued at ZAR500, 000 (US$63,565) or less.

The subsequent slowdown of house prices in 2008 can be attributed to the full implementation of the National Credit Act in mid-2007, interest rate hikes, and to the global financial crisis.

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The National Credit Act aimed to protect borrowers from over-indebtedness, by limiting the amount of funds that can be borrowed, and requiring every lender to assess borrowers’ credit-worthiness. It requires lenders to disclose every term in the contract and gives the borrowers the right to request their credit report, and to challenge the report if there are inaccuracies.

The act has tended to reduce the supply of mortgage loans. 

Modest growth, high unemployment

South Africa’s economy grew by 3.1% in 2011, and household income expanded by 4.6%, after modest 2.8% growth in 2010, and a 1.7% contraction in 2009.

However, the unemployment rate was 25% in the third quarter of 2011, up from 24.8% in 2010, and 21.9% in 2008.

Inflation is a problem too.  Interest rates were kept stable in the first half of 2011 after a long series of cuts from December 2008 to November 2010 brought interest rates down to 9%, the lowest since 1973-74. This had a visible impact on residential affordability, reducing average mortgage payments due by 33.5% in December 2010 as compared to two years earlier.

Even though inflation started to rise in 2011, interest rates have remained stable. However inflationary pressures are growing. It is expected that mortgage rates will rise by a cumulative 200 basis points in the first seven months of 2012.

Jacob Zuma – a worrying figure

ANC leader Jacob Zuma became president of South Africa in 2009, despite corruption charges. Zuma is an economic leftist who supports wealth redistribution, but has assured foreign investors that their interests will be protected.

He has pledged to create 5 million jobs by 2020, but that target looks increasingly unrealistic.

Economic challenges seem to be becoming secondary to the growing political uncertainties. Zuma’s position is under pressure and the African National Congress is losing support. Critics claim that Zuma is being indecisive, appeasing factions within the party, while safeguarding his own position.

Populist measures are not out of the question. Zuma told a ruling-party rally in the northern town of Polokwane in January that foreigners might face restrictions on buying landed property, and be limited to leasing land. Foreigners can now own immovable property without restriction.

Land redistribution is an ongoing issue. Farmland is still mostly white-owned. Officials have signalled that large-scale expropriation is on the cards, with the government aiming to transfer 30% of farmland to black South Africans by 2014.

With the opposition Democratic Alliance gaining significant strength, the National Assembly has approved an information bill to “safeguard national security”. The law is said by critics to pose a threat to freedom of speech.

No segment of South Africa’s housing market is doing well

South Africa’s leading mortgage provider ABSA notes the following trends in the different housing segments.  What is remarkable is that no segment has done particularly well:

  • Affordable houses: Average ‘affordable’ home prices (homes from 40 sq. m. to 79 sq. m., and worth ZAR 480 000 or less) were up 1.5% year-on-year to the third quarter of 2011 to around ZAR 314000. But in real terms, during the year to the third quarter, house prices fell 3.9%
  • Small houses: (80 sq. m. to 140 sq. m.)  In real terms, during the year to Q3, house prices fell 8.3%
  • Medium-sized houses: (141 sq. m. to 220 sq. m.) Despite house prices rises of 4.2% in nominal terms, in real terms, during the year to Q3, house price fell 1.3%
  • Large houses: (221 sq. m. to 400 sq. m.) even in nominal terms during the year to Q3 prices only rose 0.6%.
  • Luxury housing: (houses from ZAR3.5 million to ZAR12.8 million) Despite house price rises of 1.6 % in nominal terms, in real terms during the year to Q3, house prices fell 1.6%.

Johannesburg is South Africa’s largest city and the centre of manufacturing, financial and economic activities, and home to Africa’s largest stock exchange. The highest average house prices in South Africa are in North and West Johannesburg at ZAR 1,374,853 (US$170,644) in Q3 2011. Again, house prices are down on last year. 

Metropolitan Regions


PRICE (ZAR) Q3 2011
East London
Source: ABSA

The value of new mortgage loans granted by banks on residential property fell 34% y-o-y to the second quarter of 2011, so that during the first three quarters of 2011, total outstanding residential mortgages rose only marginally, with a y-o-y increase of only 2%.

Conclusion: beautiful country, worrying politics

With rising inflation, a weak economy, and an increasingly unpopular President at the helm, the ANC retains a position of unchallenged dominance.

Ye with long-unresolved problems of severe social injustice set to be resolved at the hands of a less than reassuring leader, the worry is that politics in the beautiful country of South Africa are, yet again, taking a dangerous turn.

This article was republished with permission from Global Property Guide.


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