Black middle class increasingly investing in property

While economic growth is dismal in SA and the inequality gap is worrying, more and more members of the black middle class are investing in property, says Pam Golding Properties CEO Andrew Golding.

Golding, speaking last week at an annual media lunch, said he was concerned that economic growth was weak in developing countries, including SA, but said direct property investments remained resilient.

He believed that people might, in a difficult economic environment, invest in property rather than other investments.

“There is a rapid growth of people moving into major cities, including Johannesburg, Durban and Cape Town. These people need places to live and effectively we see growing demand for property in SA.”

He said cities generated 80% of national economic activity and major metros were growing twice as quickly as small towns. More people were becoming affluent, and this applied especially to the black middle class, he said, resulting in a relative shortage of housing.

“I think that even though our economy is struggling and things are difficult, property remains a tenacious investment. People appreciate that our prices are competitive compared with other countries and many properties, especially in our major cities, are of a very high quality,” said Golding.

He noted that various SA investors had taken money offshore recently but said there was still significant demand for property in SA, especially at the entry level.

Seeff Properties head Samuel Seeff recently said he had noticed that more South Africans were buying property in other countries.

“While the residential market has weakened a bit and there has been some downward pressure on prices, particularly at the upper end, buyers remain resilient.

“I just think people are aware that the economy is currently weak and that they can get competitive returns abroad. Thus, we are seeing more South Africans buying property in the UK,” Seeff said.

According to Seeff’s research, there are about 400000 South Africans living in London.

Golding says the company’s partnership with the Portugal Golden Visa programme has been successful. Some South Africans are buying property in Portugal in order to gain residence, retire there and be able to travel around the Schengen zone in Europe.

“To date almost 100 South Africans have bought property through us in Portugal, ranging from the required Golden Visa investment threshold of €500 000 to more than €1,5m. Most buyers are looking to the sought-after area of Cascais, referred to as the Portuguese Riviera, and Lisbon, due to many regeneration projects transforming the city,” says Golding.

Looking at the performance of SA’s regional property markets, Pam Golding research shows that the Western Cape is the top performer in terms of house price growth in the year to date. Golding says its large services sector is at least partly insulated from the slowdown in China’s economy, which hit commodity-producing areas. House price inflation in the province averaged 8% in the year to date, well above the national average of 5,8%. House prices in Cape Town grew 10,1% in the year to May. The Atlantic Seaboard’s prices grew 25% year to date.

The KwaZulu Natal market is similarly buoyant, with house prices rising by an average 7,2%. Gauteng’s performance is, at best, disappointing. It averages just 5,3% to date.

House price growth is set to be tepid next year, according to Absa Home Loans property analyst Jacques du Toit.

Du Toit says the International Monetary Fund (IMF) expects the world economy to grow by 3,1% in 2015 and 3,6% in 2016, having grown by 3,4% in 2014, with growth to remain largely uneven across major economies and geographical regions.

The IMF expects SA’s economy to grow 1,4% this year and 1,3% next year. The World Bank is forecasting GDP growth of 1,5% this year and 1,7% in 2016, and the Reserve Bank estimates 1,5% and 1,6% respectively.

“House price growth is forecast to remain in the single digits for the rest of the year and in 2016,” Du Toit says. “Lower price growth is forecast for 2015 and 2016 compared with the previous two years, mainly as a result of trends in, and the outlook for, key macroeconomic and household sector-related factors. In view of expectations for nominal house price growth and consumer price inflation, low real price inflation is projected for this year, with prices to remain virtually flat in real terms in 2016.”