While property prices in traditional suburban areas are ailing, they are in a sound state of health elsewhere
South Africa’s township areas may not come to buyers’ minds when looking for good returns on property investments; perhaps they should be. This is because house price growth in many of these areas is outperforming that of many traditional city suburbs, and has been doing so for years.
Furthermore, demand for properties in townships, primarily those close to major urban areas, is outstripping supply. FNB’s five-year property trends data, from 2014 to 1018, shows prices in townships in and around metros generally outperform their suburban counterparts.
The bank’s economist Siphamandla Mkhwanazi says this appears to be a common theme across all major metros. In the City of Cape Town overall, data shows property prices in this period increased by about 70%.
The Atlantic seaboard saw price growth of about 105%, the City Bowl about 90%, and the eastern suburbs about 80%. However, areas FNB classifies as “former black township regions”, including Gugulethu and Khayelitsha, saw price growth of 132%.
Price growth in Atlantis/Mamre, Mitchells Plan/Eerste Rivier and the Cape Flats was about 83%, 75%, and 70% respectively. This exceeds price inflation in Bellville and surrounds (60%), western seaboard (62%), and southern suburbs (68%).
Mkhwanazi says there are a variety of factors that influence these trends: “The first is the enduring demand that appears to consistently outstrip supply in these areas. The structure of the economy is still metro-concentrated. With inadequate supply of affordable housing in city centres, households often fall back on township dwellings to be as close as possible to economic opportunities.
“It is the combination of high demand and inadequate supply. Related to this is the huge demand for affordable rental space in these densely populated areas.
“Higher income households, and typically those who have superior access to credit markets, purchase properties in these areas and convert them into rental units.”
Mkhwanazi says this has had a “major impact” on property values in townships. Another important factor is that access to credit markets has gradually improved for the average South African.
“This has injected much needed liquidity in those markets and unlocked value (and wealth) for property owners in these areas.” He says in the City of Cape Town, regional dynamics are also at play, including the strong residual demand from households who were outpriced in the city centres during the boom from 2014 to 2016.
Statistics from bond originator BetterBond show the markets of the 20 biggest townships have seen a steady recovery since July 2018, and especially over the past few months. BetterBond chief executive Rudi Botha says: “The number of bond applications, having slumped by more than 50% in the second quarter of 2018, has shown a steady recovery since July 2018.”
Investment worthiness is the ideal
While many township residents would like to rent or own property in other traditional suburbs, some choose to remain in their own areas. The impressive township property price growth is one factor, but another is that infrastructure upgrades are making these areas more attractive.
Some township areas are still in dire need of infrastructure development, but those in which strides have already been made are showing promise for their residents.
Kecia Rust, executive director and founder of the Centre for Affordable Housing Finance in Africa (CAHF), says some neighbourhoods have seen “considerable investment” and this has had a “demonstrable impact” on the local property markets.
“The most obvious is the investments made around the World Cup in 2010 into the development of public parks and improvement of roads infrastructure in some townships. More recently, however, infrastructure investment into roads and kerbs, stormwater drainage, lighting and so on all contribute towards a sense of ‘investment worthiness’ where households feel they can commit to investing their own money. This is relevant for low-income township areas as much as it is for higher income areas.”
Making township neighbourhoods investment grade is a critical issue, Rust says, and in a CAHF document there is a proposal for area-based “green lining”, which she defines as “a partnership between local municipalities and lenders in which specific areas are targeted for efforts to make them ‘investment grade’ for households and lenders alike”.
This partnership would see municipalities committing to an increased focus on the collection of rates and services payments, by-law enforcement, expedited municipal approvals, and area-based improvement initiatives.
“Lenders would commit to a targeted lending programme for qualifying borrowers in these areas, greater local presence, and accessible community education initiatives,” Rust says.
This will positively affect the local areas and their property markets and improve social conditions. Berry Everitt, chief executive of the Chas Everitt International property group, says international research has shown home ownership brings about social benefits such as better health and education, lower crimes rates and stronger communities.
“This is especially the case in rapidly urbanising situations. There are many places to observe this in action, including inner-city areas where run-down factories and office blocks have been converted to trendy apartments and workspaces, and where regeneration has led to social revival.”
In many township areas where long-term residents received title deeds, they have been able to borrow against their properties or sell and upgrade.
Bond approval numbers swell
BetterBond statistics show the number of bond approvals for township properties increased markedly since November 2018. This, says the company’s Rudi Botha, indicates the greater willingness of banks to approve these applications.
In March 2019 the number was 16.9% up on March 2018, although the overall number of approvals over the past 12 months was down by 16.5%. Botha says the number of bonds actually granted has improved “markedly” since December 2018, and in March 2019 was 36% up on March 2018.
“However, due to the steep decline in grants during the third quarter of 2018, following the slump in applications in the second quarter, the overall number of grants (and completed sales) over the past 12 months was still 22.4% down on the previous 12 months.”
Townships from which this data was extracted include Soweto, Meadowlands, Mamelodi, Tembisa and Khayelitsha.
Value is rising in Khayelitsha
In 2012, Khayelitsha’s Site C saw only around 2 600 property transfers take place, with the minimum value being R1500 and the maximum R7500. Fast forward a few years and those numbers read differently, Lightstone statistics show.
In 2014, one property here was sold, the value of which was R159000. In 2016, the minimum property value was R56 500 while the most expensive was R130 000. Already this year, 438 properties in Khayelitsha site C have been sold, with the maximum value at R450000.
The property market statistics for Gugulethu show a similar picture, with the most expensive property there in 2008 selling for R510000. In 2015, the property with the highest value was R580 000, in 2016 it was R600 000 and in 2017 it was R870 000.
Lightstone’s figures show that, despite their price growth often outperforming that of traditional suburbs, property prices in township areas as still much lower. This does, however, make for easier access onto the property ladder plus the promise of good investment returns.
Areas on the up and up
Cumulative five-year price growth in the City of Johannesburg was about 22%, FNB data shows. Over this 2014 to 2018 period, Diepkloof/ Soweto/Meadowlands saw house price inflation of 52.92%, a figure which far outperforms many other areas.
The bank’s data shows other areas’ house price growth to have been:
- Johannesburg: 19%
- Johannesburg South: 22%
- Midrand/Diepsloot: 21%
- Randburg: 19%
- Roodepoort: 20%
- Sandton/Alexandra: 13%
- Lenasia/Orange Farm/Ennerdale: 15%
Rental prices in the city’s townships have not fared as well, though, data from TPN shows. In Tembisa, the average rental in 2014 was R5 944, but last year it was R3 488. In Soweto, the 2014 average was R4 858 compared to R4 183 last year. Similarly, Soshanguve saw a drop from R3 025 to R2 742, TPN says.