Changing Trends in Residential Living

Private Property South Africa
Jacques du Toit

Jacques du Toit, Senior Property Economist of the Absa Group looks at the

factors influencing residential living trends and their impact in driving

changes in the residential property market.

The factors influencing residential living trends

During the past six years, various economic, non-economic, cyclical and

structural factors have impacted the residential property market in South

Africa. Many of these not only had an effect on the performance of the country's

housing market, but also influenced the structure and composition of housing,

and thus living trends, in the local market.

  • Economic conditions: The country recorded a strong

    economic performance during 2000 to 2005, while inflation declined to its

    lowest level since the 1960s, resulting in interest rates dropping to levels

    not seen during the past 25 years.

  • Fiscal policy: Personal tax relief totalling R57,7 billion

    was granted between 2000 and 2006. Transfer duty on property has been cut

    for five consecutive years since 2002/03.

  • Demography: A rapidly growing middle class with a strong

    culture of home-ownership caused the demand for housing to increase sharply.

    The number of households has increased over the years, which also

    contributed to the higher demand for housing. Another demographic factor

    affecting housing and living trends is the tendency for people to live

    longer than they did many years back, resulting in a bigger demand for

    accommodation in old-age homes and retirement villages.

  • Availability of land for residential development:

    Specifically rapidly growing urban areas in the country are experiencing

    increasing shortages of suitable and properly serviced land for residential

    purposes.

  • Transport infrastructure: A strongly growing economy,

    including record sales of new vehicles, increased the already immense

    pressure on the country's transport infrastructure. The road infrastructure,

    especially in urban areas, struggles to cope with higher volumes of traffic,

    resulting in a more rapid deterioration of this infrastructure. Public

    transport systems are not up to standard, nor geared to effectively

    transport increasing numbers of commuters daily.

  • Affordability of housing: House prices increased sharply

    in 2000 to 2005, whereas growth in income levels lagged behind. The result

    was that the house price-to-remuneration ratio increased rapidly during this

    period. The ratio of the mortgage repayment on a house to remuneration

    (influenced by house prices, interest rates and remuneration), has been on

    an upward trend since early 2002. These developments imply that housing has

    become less affordable, especially for first-time, and lower- and

    middle-income buyers.

  • Lifestyle changes: Hectic urban lifestyles, traffic

    congestion and technological progress are prompting more people to work from

    home. Also, an increasing number of people opt to live in various types of

    more relaxed, tranquil, less cramped and perceived to be more secure

    estates. However, changing urban conditions have also forced many people to

    live in higher-density residential developments close to places of work and

    amenities such as shopping centres, schools and access routes.

  • Access to finance: Because of the tough competition

    between the major banks for mortgage loan business, various innovative

    mortgage products and marketing campaigns were launched in an attempt to

    keep existing customers and attract new ones, many of whom did not

    previously have access to finance.

The impact of the factors driving residential living trends

These factors and developments have brought about many changes in the

residential property market, of which the changes in residential living trends

are probably the most visible.

  • Lifestyle residential developments: Certainly one of the

    most obvious changes in residential living trends in South Africa in recent

    years is that a large number of people have opted to live in residential

    developments and estates where they can enjoy a lifestyle that would not

    have been possible under normal conditions.

Many lifestyle developments follow a mixed-use approach and may include

amenities such as a golf course, equestrian, polo and other sporting

facilities, boutique retail shops, schools and churches. Strict access

control and high levels of security are normally a major feature of this

type of development. These are also important reasons for people wanting to

live in these enclosed communities.

  • Security villages and complexes: This type of residential

    development took off quite a few years ago when security in especially the

    major urban areas became a bigger concern. The constant demand for more

    housing, especially in urban areas, is causing an increasing shortage of

    suitable and properly serviced land for residential development in these

    areas. Residential properties in these villages and complexes are

    single-stand houses, townhouses, or low-rise blocks of flats.

Higher-density living is the norm in security villages and complexes, but

living conditions in these differ from those prevailing in the high-rise

blocks of flats prevalent many years ago. These are still to be found in the

major urban areas of the country.

However, in recent times, high-rise luxury apartments in upmarket urban

areas have been developed, mainly because people want to live near their

place of work and major shopping centres to avoid traffic congestion, but

still want to live in an upmarket area. High-rise luxury residential

apartments have also become a trend in popular holiday destinations such as

the Strand on the False Bay coast in the Western Cape.

  • Inner-city residential developments: The rejuvenation of

    inner-city areas picked up momentum some time ago in places such as the Cape

    Town city bowl (largely driven by the highly successful Victoria & Alfred

    Waterfront development) and the Durban central business district (only about

    5 kilometres away from the Durban Point development).

Johannesburg, although lagging these two cities, has also seen increased

activity in terms of restaurants, leisure activities and residential

developments, especially in the region of Newtown on the western side of the

city.

In Pretoria, the demand for inner-city residential accommodation, such as

flats, has also increased in recent years, largely because of the growing

number of students at the universities and colleges. This is a phenomenon is

not restricted to Pretoria, but also impacts on the demand for residential

accommodation in other cities and towns with universities and colleges.

These developments are all providing scope for rapid growth in the demand

for refurbished and new residential property in inner-city areas. As demand

for these properties increases because traffic congestion encourages people

to live near their place of work or study, while supply is limited, prices

will increase significantly in future.

An adequate, well run public transport system, as well as the sustainable

delivery of proper municipal services and infrastructure, will promote the

success and further expansion of inner-city residential developments.

  • Single-stand residential properties: This type of

    residential property was the norm in South Africa for many years. Upmarket

    lifestyle estates and complexes still favour this type of accommodation, but

    normally all houses in these developments have to conform to a uniform

    style, such as Tuscan, Balinese or Victorian.

  • *Retirement villages*: The popularity of this type of

    accommodation among older and retired people has increased significantly

    over the years compared with the traditional old-age home. The fact that

    people tend to live longer now than years ago has increased the demand for

    suitable accommodation from retirees. Old-age homes are no longer able to

    cope with the higher demand for accommodation.

  • Building statistics for new residential buildings: The

    building statistics for new residential buildings regularly published by

    Statistics South Africa are a source of information for determining how

    residential living trends in the country have changed over time.

  • New houses of less than 80 m²: Various factors influenced the

    delivery and financing of housing in this segment of the market, such as

    expensive development land, the high cost of and delays in rezoning land

    for high-density, middle-class residential developments, which have

    contributed to a sharp increase in holding costs. In addition to these

    factors, building cost increases have been well above the inflation

    rate, resulting from shortages in certain building materials and skilled

    labour. The combined effect of these factors has put profit margins

    under pressure in this segment of the property market.

These developments contributed to the number of building plans passed

for this type of housing declining sharply in the past, which had a

lagged effect on the construction of housing in this segment. The number

of these houses built dropped by 28,3% to 27 397 in 2005 compared with

  1. This was mainly the result of a decline in plans passed for this

type of house in 2003 and 2004.

  • New houses of ?80 m²: With the property market starting to

    pick up in 2000 and growing strongly up to 2005, the number of new

    houses built in this segment of the market increased to 23 136 units in

    2005, which was about 117% more than the 10 643 units built in 1999. In

    total, 93 142 new houses in this category were built between 2000 and 2005.

The growth in the number of plans passed for this category of houses was

significantly lower in 2005 compared with 2004, which implies that the

growth in construction of these houses will probably be lower in 2006.

This is in line with a residential market that has been cooling off

since late 2004.

  • New flats and townhouses: The total number of these

    properties built showed a sharp declining trend between 1997 and 2001 on

    the back of rising interest rates from 1997 to 1998. By 2001, the number

    of units built, at 7 093, was down by as much as 61,4% compared with

    1996, when 18 354 units were built.

This segment of the residential property market performed well over the

past four years on the back of a wide range of supporting factors. The

number of units built increased to 24 016 in 2005. This was 64,3% up on

2004 and a massive 238,6% up on the 7 093 units built in 2001.

Although the growth rate of above 40% in 2004 in the number of building

plans passed for new flats and townhouses tapered off somewhat to around

34% in 2005, prospects are looking bright for the construction phase

over the next 12 to 24 months.

  • Size trends regarding new residential buildings: The data

    for the total number and total square metres of new houses (below and above

    80 m²), flats and townhouses built published by Statistics South Africa can

    be used to calculate the average size of these types of residential

    buildings.

  • New houses of less than 80 m²: The average size of houses of less than 80 m² remained fairly stable at around 40 m² over the past few years.

  • New houses of 80 m² and above: The average building area of

    these newly-built houses was on a gradual upward trend during the past

    ten years. In 2000, after the high interest rates of 1998/99, the

    average building area increased by only 0,4% over 1999. Despite the

    surge in house prices during the past six years since 2000, which

    negatively influenced the affordability of housing over this period, the

    average size of these new houses kept increasing up until 2004. The main

    reason for this was that stand size was probably compromised in an

    attempt to still afford a decent-sized house. However, in 2005, the

    average size of these new houses dropped by 1,1% from 221 m² to 218 m².

    This is probably because the affordability of housing eventually started

    to have an impact.

  • New flats and townhouses: The average building area of new

    flats and townhouses largely followed the size trends of newly-built

    houses of ?80 m² over the past few years. In 2000, the average building

    area declined by 4,3%, which was probably a lagged result of the high

    interest rates in 1998/99. As in the case of new houses of ?80 m², the

    average size of new flats and townhouses also declined in 2005, by 6,4%

    from almost 140 m² in 2004 to 131 m² in 2005. Housing generally becoming

    less affordable in recent times, which probably also eventually impacted

    on the average building area of new flats and townhouses.

Virtually the same trends as the abovementioned emerged from Absa data in

respect of new homes in the so-called middle segment of the market (houses of

between 80 m² and 400 m², with a value of up to R2,2 million). However, these

calculations not only focus on the average building area of these homes, but

also on the average area of the stands on which these homes were built over the

years.

  • Building area: The effect of the high interest rates of

    1998/99 is evident from the Absa data, with a drop in the average building

    area of new houses in 1999-2000. The declining trend in the average building

    area of new houses since 2004 to 167 m² in the metro areas and 159 m² in the

    whole of South Africa last year can be ascribed to housing, in general,

    becoming relatively expensive in recent times.

  • Land area: The average size of stands on which new houses

    are built has been on a declining trend since the early 1990s. This can be

    ascribed to suitable vacant land for residential development becoming

    increasingly scarce, especially in the rapidly growing metro areas in the

    country. In 2005, the average land area for new housing was at 536 m² less

    than half of what is was back in 1980. This is an indication of an increase

    in higher-density residential developments over the years. This trend is

    expected to continue in future.

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