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
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
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
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
- 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
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
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.