Simon Bray talks about the performance and future growth prospects of the South African affordable housing market.
Reporter: With our economy constantly taking a dive, we cannot help but ask the question: should we be coming anywhere near the housing market? Is there any sector right now, of the housing market, that is even remotely affordable?
Simon Bray: It's not been great news the last 12 months, last 18 months. It feels like we've just been taking hit after hit. But South Africans are nothing if not resilient, and the truth is, South Africa, if you look at it in an emerging market's context, if you look at it in the context of the rest of Africa, there are still some great fundamentals around South African economy. I think we get fixated on some of the stories at the top, and some of the bad press. But at the bottom, we've still got a great economy, and we've got some great drivers, and so the property market-- is it a good or a bad thing? Absolutely depends on the market segment that you're looking at. And I think that's what you've touched on. Are there those pockets of excellence? Are there those pockets in the market that are going to outperform the rest of the economy over the next five to ten years? Certainly the affordable market has been doing that. It's been silently marching on, and no one's really paid a lot of attention to it, but it is really starting to explode now. So over the last ten years, the growth in sub-million rand homes has been extraordinary. In the last year, the growth has been 10%, which has easily outstripped the rest of the market, and if you look at really affordable homes - those less than R400,000 - they've gone up by 25% in the last couple of years. So there's real growth in that segment of the market, and I think that's an exciting story for South African property in general.
Why do you think those areas have been so successful in terms of their growth?
Well, I think it's a couple of things. You've got a lot more first-time buyers coming into the market, and that's a great story. That's this concept of education resulting in great employment, employment resulting in promotion, and that ultimately resulting in home ownership. So it's not a quick thing that you can turn on, but it feels like we've been doing the right things for a number of years. And we're starting to see the results of that, which is more first-time buyers entering the market, more people interested in home ownership, seeing the value of having that asset, and so that's driving the market, and then the other side is this idea of affordability. Residential markets have gotten less and less affordable, so your traditional suburbs have gotten more and more expensive. So the growth needs to come in other areas. It needs to come in your previously township areas, or where your previously undeveloped areas are growing at a really fast rate.
Are there any schemes available that will make home ownership more of a reality to buyers within the segment?
There's great money to be made in paying your own bond as opposed to paying somebody else's bond. Mitchells Plain is a great example. You're seeing houses that were R250,000 just five years ago, going for R600 000 - R650 000. That's unreal growth for living in a house. But there are some great programs, and the Department of Human Settlements has been supporting a program for a while now that I don't think a lot of people have really understood or gotten hold of, and that's this FLISP subsidy. So, if you earn between R3,500 and R15,000, you qualify for this subsidy, and it basically is a subsidy that they'll give you on top of the purchase price of the home. So if you've organised a bond with your bank for a home of about R300,000, you could stand to get as much as R87,000 in a subsidy from the government. So great programs like that are stimulating that end of the market as well.
Do you think that this whole trend of ownership and affordable property will continue as the months and the years go on? Is it something that's going to take hold of South Africans?
I think so. This is representative of the huge pent-up demand in the market. You've got a lot of people that need housing, a lot of people that need homes. The government's doing its part in providing your housing right at the base of the pyramid, but then this sits just on top of that. It's like, "What do I do now that I've owned this house for five, six years?" Will I sell it and I build a bigger one, or I'll move-- I mean, that's what we all do, right? And so I think you're going to see this continue for a long period of time, because South Africa certainly isn't there yet, in terms of the demand for housing versus the supply. And we see that with developments coming online and selling out just like that. So there is a lot of demand there, and I think that's an exciting story.