Sentiment in housing market remains optimistic despite recession

04 Dec 2018

For those looking to invest in a fixer-upper or a new build, now is the time, according to Craig Hutchison, CEO of Engel & Velkers Southern Africa.
Sentiment in housing market remains optimistic despite recession

Whilst South Africa's economy is technically in a recession, given two consecutive quarters of negative growth, there is a surprisingly optimistic sentiment in the housing market. This is even more surprising when considering other negative factors affecting economic growth such as the recent increase in VAT, the persistent rise in petrol price and the unlikelihood of further interest rate cuts.

"On the ground, although consumers are seeing a current tough economic climate, there is sentiment of a bright future, especially where it concerns the property market. The market remains robust, particularly in the main metropoles where a younger demographic is seeing the value in owning property. Added to this is the financial sector's inclination to give bonds - another factor that is keeping the market buoyant and active," says Hutchison.

Cost to build

According to Stats SA, the North West has the cheapest construction costs in South Africa currently, while KwaZulu-Natal, the most expensive. The average building costs in the North West amount to R5,060 per sqm, while construction costs in KwaZulu-Natal come in at R9,610 per sqm. The second most affordable province is Limpopo, at R5,270 per sqm followed by Mpumalanga at R5,690 per sqm. The second most expensive construction province is Gauteng at R7,870 per sqm followed by the Western Cape at R7,020 per sqm.

Interestingly, the province with the largest amount of building plans approved per total square meterage for the period January to July 2018 was the Western Cape, followed by Gauteng and then KwaZulu-Natal.

The costs of renovating a property will vary depending on the project at hand, however in most instances will be substantially lower than the per sqm costs described above for a new build. A fresh coat of paint and updated flooring may be at the lower end of the cost scale, while a new kitchen or bathroom coupled to knocking down and rebuilding walls will tend to the higher end.

Key investment areas

"While some areas are experiencing a sluggish growth period, there are others that are outperforming the rest with excellent growth and lucrative long-term investment opportunities. The growth in residential property prices in Gauteng and Kwazulu-Natal has gradually rebounded after a number of slow years, with the East Rand showing the strongest recovery of the Gauteng metropolitan areas," says Hutchison.

FNB's estate agent survey shows that the Gauteng residential market remains the strong point in South Africa in terms of stability. Homes in Pretoria sell in just over 11 weeks, compared to the national average of approximately 16 weeks.

Significantly, Pretoria is the fastest growing South African metro economy and is ranked 35th on a list of 300 of the world's biggest metro areas, according to Global Metro Monitor. Pretoria has surpassed both Johannesburg and Cape Town with a 7.6% growth in employment and strong GDP per capital growth.

"In Johannesburg and Pretoria, the market is experiencing an upward trend in sales across all price ranges. These areas are ideally suited to younger consumers in professional and corporate positions wanting the live-play-work lifestyle on offer in these areas," says Hutchison.

Demand for sectional title living

Gauteng is experiencing a rising demand for sectional title units, many of which have been developed with convenience in mind. Many sectional title developments are mixed-use and provide numerous amenities. They are also opportunely positioned for easy commute to work, school and retail. Locations such as the greater Fourways area, Midrand and Centurion continue to be sought-after as they are well-priced and present an excellent investment.

"Whether you are renovating or investing in a new build, ensure that you are dealing with a professional and reputable company. New builds and renovations are valuable investments, and have the potential for considerable capital growth when the time comes to consider selling," concludes Hutchison.

Article published courtesy of BIZCommunity


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