MARKET TRENDS : 2005
By Dr Dirk A Prinsloo
In a recent interview with Dirk Prinsloo the main question asked was: What were the outstanding aspects that highlighted the main market drivers and forces during 2005? In a brief discussion the following were highlighted.
Macro economic conditions
The most important aspect driving the property sector of the market during 2005 was the fact that 11 out of the 12 indicators impacting on property performance have been positive throughout the year. Some of these indicators might have dropped from their highest levels, but are still very strong. In most cases record breaking indices have been achieved.
From this table note the following:
- the current GDP growth is at 4,8%. The figures for the 3rd quarter are not available yet. According to senior economists, the growth in GDP is much higher than anticipated or calculated by Stats SA;
- the inflation is still within the targets of 3% – 6% as set by the government;
- building plans passed is 50% higher than a year ago, indicating the activities on the construction side, mainly focussing on residential development;
- car sales have increased 19% year on year for October 2005. This is down from 26%, but still indicating tremendous strength in this sector of the market;
- house prices, although down, indicate a very healthy growth in mortgage lending;
- formal employees in the economy are growing at 42 000 people per month. According to senior economists this will probably increase to 50 000 per month;
- retail sales year on year has increased by 6% – also down from a high of 12% but still very positive;
- the SACOB Business Index is the highest in 20 years;
- interest rates are the lowest in 23 years. An oil price which impacted negatively on inflation has also come down to approximately 60 dollars per barrel. Tax cuts earlier are putting an extra R6.9 billion into the pockets of South Africans.
The most important regarding the economic conditions is the fact that changes in the economy currently are structural and not cyclical. This means that poorer people are earning more money and the general increase in the middle markets is already taking place.
Demographic changes throughout South Africa highlighted the following:
- as far as population numbers are concerned, the projected growth until 2015 would be ±16 million additional people. As a result of the impact of HIV/AIDS the population numbers will remain at ±44 million. This indicates the serious impact of HIV/AIDS on the population;
- South Africa is 60% urbanised, compared to the world organisation figure of 48%. However a large proportion of the urbanised population is as a result of poor agricultural conditions and farm layoffs. Most of the rural areas have shown declines in population numbers with major relocations to Gauteng and Western Cape;
- unemployment remains a critical issue in the South African economy;
- as far as demographic shifts are concerned note the following:
- LSM 8-10 currently represents 16% of the total SA market. This will increase to 20% by 2010/2012. As a result the number of households in this category will increase from 1.6 to 2 million. This clearly would have an impact on the supply of housing facilities in the middle and upper markets;
- LSM 5-7 currently represents 31% of the market which will most probably increase to 37%. This means an increase from 3.1 million to 3.7 million households. An additional 600 000 households will move into this category during the next 5 – 10 years.
Most of the demand for new housing will come from the LSM 5 – 7 category and provision should be made.
Prior to 2003/4 residential growth in our metropolitan areas was mainly restricted to one or two specific sectors of a city. In most cases this growth was linked to the more affluent suburbs e.g. south-eastern sector of Tshwane, north/north-western sector of Johannesburg, northern sector of Cape Town and north of Durban. However, because of the economic and demographic changes in the country, growth has taken place throughout the entire city. The best example of this very high residential growth is reflected in the growth currently taking place in Tshwane/Pretoria. Map 1 indicates that Tshwane/Pretoria is growing throughout the city, making provision for different categories of house prices based on socio-economic status and affordability levels.
The southern suburbs of Greater Johannesburg are showing strong growth and it is expected that between 6 000 and 10 000 housing units will be built during the next 7 – 10 years. Growth in the northern sectors of Johannesburg will continue at a rate of between 2 000 and 3 000 housing units per annum. There are also major plans to develop vacant land between Pretoria and Johannesburg. The western side of the N1 highway in Midrand will also show major growth in future.
Class vs. colour
Comments were made earlier by the Minister of Housing that rich and poor people should live together in new residential areas. This is a form of forced integration which seems to be the opposite of forced segregation or apartheid.
Location of residents within a city is mainly determined by the person’s socio-economic status. In a free market society, people mostly wish to have social contact with their peers and close social relations with lower status individuals do not normally take place.
Throughout the westernised cities of the world social classes live relatively separate from each other. This separation is mainly based on different socio-economic status levels, which is defined by education, occupation and income.
The latest research findings from the University of South Africa’s Bureau of Market Research by Professor Carel van Aardt confirm that socio-economic status in South Africa has become more important as a differentiating factor than race.
Address will always be an important indicator of social class. The latest trend is that as long as you can afford to live in Houghton or Bryanston in Johannesburg, Mooikloof in Pretoria or Constantia in Cape Town, colour does not matter.
The comment made by the Minister to integrate different socio-economic groups is artificial and will definitely not work, similar to the fact that apartheid was artificial and did not work.
There is currently more than 1 million m² of retail space in different planning stages. The most critical aspect regarding retail development at the moment is to make sure that there are sufficient housing units in the immediate vicinity to warrant this new development. Most of the new developments are based on the new growth projected for the different areas. It is therefore of utmost importance that retail should always ‘follow the roofs’, meaning that sufficient housing units must be available before retail development can be financially viable.
At this point in time the timing of retail development is more important than the other key success factors of retail development. Location will always remain very important, but at the moment the planning of a new development must carefully consider the residential growth in a particular area. In some cases the retail potential will be ready in 3 – 5 years, in others 5 – 8 years and even 10 – 15 years. It is especially the retailers that must take cognisance of the tempo of residential development in specific areas.
A second very important component in the development of a large number of neighbourhood and convenience centres is the location, the anchor tenant and the availability of parking. Neighbourhood shopping centres are currently anchored by two grocery outlets, e.g. Woolworths together with Pick ‘n Pay, Checkers or Spar. This offers a much stronger centre and a wider catchment area.
Township shopping centre development
This is a very positive trend and most townships are currently being investigated for the construction of shopping centre facilities. The facilities range from small neighbourhood centres to large centres close to 60 000m². So far the centres of between 15 000m² and 20 000m² have been very successful. The tenant mix mainly focuses on food, clothing, furniture and services.
The one question that remains, however, is the success of the very large regional centres in the township areas, e.g. two in Soweto. The main drive in the development of these centres should be to provide a wide range of national tenants and to cater for the specific needs of the market, ranging from LSM 4 – 7. It is important not to over build these centres and not to have too many line shops or too exclusive tenants. It is also expected that there will always remain an outflow from these areas to the CBD areas as well as other large decentralised shopping centres.
The success of the Gautrain project
I have always been positive towards the Gautrian project. Travel patterns will change over time and the infrastructure and services will also be provided to make this service more attractive for commuters. I have always had two concerns regarding the Gautrain project namely that the end station in Tshwane is only at Hatfield. If one takes into consideration that ±25% of all the households in the south-eastern sector of Pretoria work in the Johannesburg area, the fact that the line will not be extended to Menlyn will exclude a large proportion of potential commuters. The travel time from suburbs like Moreleta Park, Garsfontein, Faerie Glen and Constantia Park to Hatfield will increase the total duration of the trip and make the train less attractive.
Based on optimistic calculations regarding the number of potential users per day comes to 60 000 commuters. This is still only 45% of the target of 134 000 commuters as calculated by the Gautrain project team. Other transport economists are even more pessimistic, estimating only 20 000 potential daily users.
Completion of every future project in South Africa is currently aiming for August 2010 when South Africa hosts the World Soccer Cup Final. Let’s hope that the stadiums and the rest of the infrastructure are completed. The completion of the Gautrain project is the least important for the World Soccer Cup Final.
The most critical aspect regarding future property development is the targeted GDP growth of 6% by the State President. All the aspects above indicate very positive structural economic and demographic changes. The middle market of the South African economy will grow by 400 000 – 600 000 households by 1012, while the upper end of the market will also show major growth of between 200 000 to 400 000 households. This will have a very positive impact on the housing market, car sales as well as further retail development. The rest of the infrastructural developments proposed for South Africa (R160 billion plus) will definitely stimulate further growth and will most probably reach a GDP growth of 6% sooner than expected. Service levels, productivity and political stability are however of the major aspects that would need attention in future.
2005 will be remembered as the year where the New South Africa has really come together on economic, demographic and socio-economic levels. All these aspects will highlight South Africa as one of the strong developing countries in the world.
YOUR PARTNER IN MARKET RESEARCH