In January of this year , a column by Magnus Heystek appeared entitled  "Property: a destroyer of wealth". Paul Stevens, CEO of Just Property, points out that the important questions are “Which property?” and “Whose wealth?”

People with the wealth to own or invest in listed property or REITs may not have added to their wealth over the past five years, but the man on the street, particularly those transacting in the lower bands, who Heystek’s article completely ignores, have had unprecedented opportunities to build wealth through property during the same period. Some of the factors ignored in Heystek’s article are mentioned below.

Generational wealth

Heystek ignores the role that property can play in building generational wealth for groups who have been denied this in the past.

The RDP housing sector remains widely unregulated and much work is needed around providing title deeds, homeowner education and legal support. However, those who have obtained RDP homes have had the opportunity to own properties that can become assets. Through appreciation of these assets, entrepreneurship, job creation and/or access to higher levels of education are stimulated.

Importantly, according to Lightstone’s Residential Property Indices, November 2022, “Annual property inflation in the Low-Value segment (R250k) was once again much higher than that in other segments - inflation for properties in Low-Value markets was 9.2%, compared to 3.4% for properties in Mid Value markets (R250k - R700k).”

As Heystek notes, residential development has fallen. However, Lightstone data suggests that the bulk of new residential property development “is taking place in the affordable housing category, where it is most needed” - in nine out of the top ten suburbs in both Gauteng and the Western Cape. The top three transfer bands in Gauteng were R500k to R1m, R1m to R2m, and R250k to R500k; the top transfer band, since 2016, in the Western Cape was R1m to R2m, followed by the R500k to R1m band and then the R2m to R3m band. 

Gearing

Another aspect that Heystek’s article does not address is gearing, which is missing from a lot of coverage on the market and opportunities in real estate.

Gearing is essentially the use of borrowed capital (i.e. debt) to partially fund a property purchase. With banks offering 100%+ loans, eligible South Africans can benefit from increased property values over time and/or rental income that covers their expenses (including bond repayments, utilities, insurance etc) partly or in full.

The rental market has been under pressure in recent years and this looks set to continue throughout 2023, so a cautionary approach to buy-to-let property has been and continues to be, needed. The best opportunity to benefit from gearing lies in a long-term view. The current market does not support “flipping”, where properties are bought and sold quickly.

Low-interest rates over the past few years meant that one could buy a property for around the same price as you could rent one. This bolstered the property market during the height of the COVID pandemic:

Nationally, freehold sales jumped from 112 315 in 2020 to 148 902 in 2021 and remained stable at 145 284 in 2022Nationally, sectional scheme sales, less affected by interest rate increases, jumped from 63 572 in 2020 to 84 333 in 2021 and 84 068 in 2022

Early indicators do indeed suggest that market sentiment has dipped as interest rates have increased, but they are still well below the highs that were recorded in 1998 at 25.5% and 2009 at 15.5%. We are not yet in a high-rate phase but more interest rate increases are predicted into 2024, so buyers should not buy at the limit of their affordability. 

Lightstone predicts a buyer’s market in 2023, so new property investors should commit to owning the property for at least three years before even considering selling. In the short term, they are unlikely to see significant increases in the value of their residential properties. The benefit in the short term is that you are paying off your own mortgage rather than someone else’s (if you were a tenant). Buyers should also look at properties with features that address market concerns, such as those that offer alternative power and water supplies.

Market trends in the last 10 years (Source: Lightstone Blueprint): 

Opportunities in smaller towns

While not all small towns will show similar growth in sales volumes and values, take a look at the trends in smaller towns where Just Property operates (all data is from Lightstone Town Reports).

Malmesbury

Just Property Malmesbury and the Riebeek Valley are excited about the future of this region and the success they have achieved. Jacques Basson, Principal of Just Property Malmesbury and the Riebeek Valley, is a recognised specialist in evaluating economic trends and developments within the property industry. He eagerly shares his views on the significant growth their Malmesbury and Riebeek Valley branches are experiencing.

“A key factor that has led to growth in our area is the quick access now possible to the Cape Metropole and Cape Town International Airport, thanks to the recently completed upgrading of the N7 link.”

“Malmesbury and the Riebeek Valley offer impressive investment opportunities in established and new security estates like Mount Royal Golf Estate. The country lifestyle continues to gain popularity as it allows residents to pursue diverse outdoor adventure and family-based activities such as hiking, MTB cycling, and more.”

“This region and tourist destinations such as Riebeek-Kasteel offer quaint and trendy restaurants, country markets, music and food festivals, and community events that provide entertainment and opportunities to meet new people. As a result, younger couples are also willing to consider private education and home-schooling options to enjoy the lifestyle offered.”

Semigration and the work-from-home phenomenon have certainly contributed to growth, but there is also great demand for affordable housing in smaller towns where such properties are easier to acquire at more competitive prices. Here are a few more examples: 

Centurion

Hayley Ivins-Downes, digital head of Lightstone Property, recently noted that residential development in Gauteng has seen the most activity in Olievenhoutbosch, previously an informal settlement near Centurion, and “reportedly one of the fastest-growing residential nodes in the province”. 

Interestingly, from February 2022 to January 2023, Lightstone’s Town Report for Centurion showed that more than a third of recent buyers there were aged 18-35 years. 

Stellenbosch

In Stellenbosch, while value has soared, activity is not only from buyers investing in student accommodation or wealthy buyers who have moved to the area over the past year. In fact, the highest number of first-time transfer registrations of freehold property was in the R400k band. The highest number of sectional title transfers (repeat sales) were in the R800 001 to R1 500 000 band.

Jeffreys Bay

Lightstone Town data shows that most estate transfers in Jeffreys Bay (from Nov 2022 to Jan 2023 and over the full year from Feb 2022 to Jan 2023) were in the R400k band. The highest number of freehold transfers was in the R1.5K to R3m band, and most sectional transfers were in the R800k to R1.5m band. According to Wilna du Raan, franchisee of Just Property Jeffreys Bay, rental collections and vacancies have improved vastly over the past year and “the rental market is booming”.

Gqeberha (Port Elizabeth)

In Gqeberha, while the age of recent sellers was evenly split across the bands from 18 to 65 or older, 30% of buyers were between 18 and 35 years of age. Most transfers were for sectional title properties, with the highest number being in the R800 001 to R1 500 000 band. Freehold property transfers were predominantly in the R800 001 to R1 500 000 and R1 500 001 to R3 000 000 bands.

Rentals In terms of demand for rentals, the highest, consistent demand is for properties in the R5 000 to R7 500 band; this is followed by the R7 500 to R10 000 bracket, wherein the national average rent sits. (Source: PayProp Annual Market Report 2021)

“With residential property, my feeling is that it is a vehicle that can protect wealth (prices don't crash as easily as stock prices do) and it is still one of few investment vehicles in which a person can make capital gains on borrowed money,” says Smuts.

Heystek says that the “residential rental market is expected to slow in 2023”. This is simplistic. There will be some regions where the rental market will slow, but others where it is particularly buoyant and likely to remain so. 

Nevermind Cape Town’s high demand/low supply, at the time of writing Upper Highway in KZN had 354 residential listings to rent on a major property portal, ranging from R3 200 p/m to R50 000 p/m. Across this wide range, there is a major stock shortage in apartments (especially two bedrooms) and secure estates. Property trends in Upper Highway indicate excellent opportunities for investors in sectional title units like Morningside Apartments that offer a projected 5-Year Return of 10.4%:

In conclusion

The meta description for Heystek’s piece reads, "Magnus Heystek of Brenthurst Wealth gives insight into the listed property sector in South Africa - an asset class to reconsider." This is patently not true of all property or for all South Africans. 

It is clear that Heystek’s focus in his column was in fact, not on “the ordinary citizen” but on a minuscule percentage of the country as a whole. No consideration was given to the wealth creation property can be (and is) bringing to many in lower income groups and lower property bands.  

For more information on Just Property, please visit www.just.property or call (087) 583 3333.