Huge blow to Joburg property as residents flee dysfunction

Property investors and South African residents are ditching Johannesburg over political instability, crumbling infrastructure, and high municipal rates coupled with poor service delivery – putting pressure on property prices in Gauteng while the Western Cape reaps the benefits.

The Sunday Times reported that property investors are flocking to the mother city as demand and price growth in Johannesburg are struggling.

“As a property investor, you follow the demand trend, which is set to continue in the Western Cape. People are searching for quality of life, and here you get higher salaries, more quality time, better scenery, a safer environment, good schools and good hospitals,” said property investor Heather Woodgate.

According to the Sunday Times, service delivery and quality of life in Johannesburg is deteriorating rapidly.

Woodgate said property owners in Joburg are continually fighting municipal billing issues, skyrocketing rates, and disruptive electricity supply in contrast to Cape Town’s “good governance” and reliable load-shedding schedule – where electricity faults are fixed timeously and even over a weekend.

Property rates in Cape Town also declined by 1.1% – effective 1 July 2023 – while Johannesburg’s rates increased by 2%.

While this represents a meagre 3.2% difference, Johannesburg reduced its property rates following outrage over the outcomes of its General Valuation Roll, which saw some residents’ property values increasing as much as 70%, noted the Organisation Undoing Tax Abuse (Outa).

Combined with the 2% increase, “these increases will become around one-fifth (20%) of a ratepayer’s monthly expense, just going to city rates and tariff charges,” said Outa Executive Head of Social Innovation, Julius Kleynhans.

As a result of the dysfunction experienced in Johannesburg and the high demand for property in the Western Cape, the FNB property barometer for the second quarter of 2023 noted that the property price gap increased to about 20% by the second quarter of 2018 and stayed there until about 2021. Since then, it has risen by another eight percentage points and has been there since the beginning of this year, reported the Sunday Times.

This trend aligns with provincial residential building plan data and rental escalations tracked by Credit Bureau TPN’s Residential Rental Monitor 2023 Q1.

According to Stats SA, the Western Cape tops the list with the largest share of residential building plans passed and the second-highest increase over the past decade – fueled by the strong semigration trend, while Gauteng has seen a decline since 2010.

The data shows that the residential building plan value in the Western Cape has skyrocketed by 296.6% since 2010, while the number of building plans increased by 77%.

By comparison, the value of residential building plans increased by 73% in Gauteng over the past decade, while the number of plans passed declined by 18.2%.

This demand shift has resulted in lower rental price growth in Gauteng compared to the Western Cape, with rental escalations in the mother city almost doubling that of Gauteng in Q1 2023, according to TPN, which has been noted by property investors such as Woodgate.

According to TPN’s report, residential rental escalations increased by 3.45% in Gauteng in Q1 2023, while the Western Cape tops all nine provinces with an increase of 6.22%.

These trends were noted by Woodgate from personal experience. Woodgate told the Sunday Times that her investment portfolio has a small flat in Sea Point, and the return there has beaten all the properties in Joburg.

She added that her investment group recently sold its investment property in Magaliessig, Johannesburg, which showed an unimpressive 3% a year capital growth increase in the past ten years, after each tenant left after just one year due to high utility costs.

Read: This is what the average house price in South Africa gets you in Joburg, Cape Town and Durban