How big the second home market is in South Africa
New data from FNB shows that an estimated 16.2% of properties bought by individual South Africans are second homes.
The data was contained in the group’s Arpil 2016 Property Barometer report, focusing on the buy-to-let property market.
FNB says that the buy-to-let home buying market is stable, which under the current economic circumstance, is ‘not necessarily a bad thing’.
The picture continues to be one of moderate buy-to-let activity levels, but at the same time limited selling of rental/investment properties, said John Loos, household and property sector strategist at FNB.
FNB’s Estate Agent Survey, noted that buy-to-let purchases in the 1st Quarter 2016 were unchanged from the previous quarter at 9% of total purchases.
Read: Where South Africa’s super-rich buy their second homes
“This 9% estimate has been recorded in 6 of the past 7 quarters, an indication of what we mean when we refer to stability,” Loos said.
The recent estimates of buy-to-let levels remain moderate by comparison to last decade’s boom period, where they were estimated as high as around 25% of total home buying at a stage back in 2004.
Examining potential drivers of buy-to-let buying, it is realistic to expect the moderate levels to continue, FNB said.
“One of the big attractions of buy-to-let buying for many is the expected capital growth that can be achieved, but house price growth generally remains benign at present. For those more focused on the rental income stream, there has been some yield “compression” since 2014 too, also reducing buy-to-let attractiveness mildly in recent years,” Loos said.
The bank pointed out that StatsSA CPI for Actual Rentals did see its inflation rate accelerate mildly in December 2015, from a previous rate of 4.94% year-on-year to 5.17%.
“But this rental inflation has not yet overtaken average house price inflation, so as at the 4th quarter of last year we still estimated the average yield on residential property to be on its declining trend,” Loos said.
Secondary properties
FNB said it has created an additional measure with which to measure secondary property buying, using Deeds data for transactions by individuals.
“Here, we estimate the number of secondary properties owned by individuals to be about 16.2% of all the properties identified. This ratio has flattened out in recent years, after a noticeable boom time rise during last decade,” Loos said.
The analyst stressed that the 16.2% figure was an estimate – though he was fairly confident that it was a reasonable one.
The figure includes only second homes bought by individuals, and not those bought through CCs or commercial entities.
Examining the growth rate in the number of these secondary properties, by February 2016 it was a moderate 3.3% year-on-year. This, too, is a far cry from a 26% growth rate in mid-2005, the bank said.
It stressed that secondary properties includes those for purposes other than buy-to-let buying, including purchases for use by relatives or for leisure purposes.
“However, one would expect that holiday home buying, like buy-to-let buying, would probably also be at moderate levels in the currently weak economic times,” Loos said.
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