More Good News! Great Potential in Township Residential Market

By Dr Dirk A Prinsloo

Urban Studies

Most households living in what are still called the ‘township areas’ have been at their current addresses for between 20 and 30 years. This indicates a low level of residential movement and propensity for relocation. The situation is explained to some considerable extent by historical factors, not least the effects of the notorious Group Areas Act, limited alternative options, lower incomes, and not least by the sameness of individual townships, as well as by the availability of stock. Since 1994 much has changed with the advent of an open market-driven economy. Notably salaries have increased substantially for many people and a much wider choice of new residential areas in the townships have become available.

Residential mobility patterns in and from the township areas are now highlighting some broad trends, namely relocation to the former ‘whites-only’ suburbs and in particular to the high-rise apartment or ‘flat’ areas such as the Johannesburg CBD, Pretoria CBD, Hillbrow, Sunnyside, and Arcadia. The residential areas between the townships and the CBDs have also become an important destination for black home-buyers mainly because of the familiarity of these areas in the daily lives of commuters. Socio-economic status, affordability levels, and proximity to places of work have in the main determined movement into the suburbs. Sales to black home-buyers in the suburban areas just mentioned range from a low 3 per cent up to 60 per cent of annual sales.

A fourth very strong trend is the sales and re-sales of existing older and especially new houses in the townships. This market had developed very slowly until about one or two years ago but is now becoming more active with rising prices and higher sales volumes.

In the rest of this article the focus is on the specific trends being experienced in some of the large townships in the metropolitan areas of the country.

The data on all the graphs shown here clearly highlight the increase in the number of sales especially during 2003/4. The market is still relatively small in spite of the increase in sales numbers. In Soweto alone there are more than 240 000 housing units of which less than 1 per cent are available for sale. In the metropolitan suburban areas the average number of houses that will come on the market during any particular year will vary between 5 and 7 per cent of the total housing stock in that particular suburb.

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House prices showed very little change between 1998 and 2003. In most cases the increase was less than 5 per cent per annum. Substantial growth has been experienced since 2004 with an average increase of up to 12 per cent. This is still much lower than increases experienced in the ‘suburbs’ and where the range is of the order of 25 to 33 per cent.

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In total 76 per cent of the houses sold in 2004 in the townships were still priced below R100 000, whilst 20 per cent were sold for between R100 000-R200 000.

By comparison with sales in 2000 those for properties over R100 000 have increased substantially.

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Average household incomes in most townships areas are now showing two very clear trends, namely a good increase amongst the more established households and much lower incomes amongst the ‘new comers’ to these areas. The latter trend is mainly due to the inflow of people from other provinces and especially from the rural areas. Such residents will become part of the lowest level of housing supply (units costing ±R20 000).

In previous surveys and articles the growth in the middle- and upper-end of the black market has been clearly highlighted. The top end of that market (earning >R12 000 monthly) grew by 23 per cent per annum while the households in the category R3 000 to R12 000 only increased by 1 per cent. This was the case until early 2002. Subsequently the growth in the middle-market has increased substantially and it is currently growing at over 5 per cent per annum adding between 30 000 and 50 000 households to the category that are capable of buying houses in the price range of between R150 000 and R220 000.

A large portion of the newly established Cosmo City (a new residential development northwest of Randburg) will sell for ±R220 000 per unit. This development will set the trend for attractive new smaller houses.

The data in Table 2 shows the income categories for different employment levels in the major sectors of the economy. It seems that affordability levels will also increase and monthly mortgage payments of R1 200 to R2 000 will open up a totally new market provided there is no sudden and significant increase in interest rates.

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As shown in the graphic diagram here the South African housing market is clearly differentiated into several distinct segments. The townships market will in future operate in the price range R150 000 – R250 000.

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Ownership will increase from the current 40 per cent to 60 per cent. All this indicates a positive township residential market.

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