South Africa’s big sectional title problem

 ·11 May 2024

South Africa’s tough economic climate is reflected in the poor performance of the nation’s Affordable residential property market, with many new buyers limited to sectional title units in old and neglected areas.

According to Lighstone, the Affordable residential Property market’s value has risen over the past few years, but volumes have dropped.

There are roughly 2.8 million formally registered “Affordable” residential properties in South Africa, which accounts for half of the country’s 5.6 million registered properties Lightstone has estimated values for.

On top of this, there are roughly 1.7 million properties that Lightstone has not attached a value to, and many of these could also be classified as Affordable, with a significant number likely to be low-income housing which is not actively trading.

Formal property stock with estimated values

“Lightstone defines Affordable property as under R750,000 in value and sub-divides the Affordable price band into three sub-bands: Lower Affordable (values under R250,000), Mid Affordable (R250,000-R500,000) and Upper Affordable (R500,000-R750,000),” said Lightstone’s Hayley Ivins-Downes.

R9,000 gross salary per month is needed to service an R250,000 bond, R18,000 for an R500,000 bond and R27,000 for an R750,000 bond.

Lightstone said that around 6 million households in South Africa fall within these income ranges, showing that there is upside potential to meet demand with supply.

Lightstone’s property bands – Affordable to Super Luxury

The average price paid for properties in the Affordable price band has increased over the past 10 years, from R230,000 in 2014 to R390,000 in 2023.

Average purchase price and transfer volumes: 2014 – 2023

“Transfer volumes have fallen from 78,000 in 2014 to 38,000 in 2023, a more significant decline than that seen in the rest of the market,” Ivins-Downes said.

“While the market overall has declined, the data suggests lower earners are under increasing financial pressure and are participating less actively in the property market.”

In terms of value growth, the Affordable sector is doing quite well, particularly in the low-affordable subband, where growth each year has generally been above 8%.

Affordable price sub-bands: annual growth 2014 – 2023
Sales in 2023

“Sales data in 2023 highlight that nearly 50,000 transfers took place in the Affordable market, which accounted for a third of all sales.”

“However, as the Affordable market constitutes 50% of registered properties, it does indicate a lower rate of activity in the segment (25% sales from 50% of the market).”

Township sales accounted for just 10,000 transfers, with Sectional Titles accounting for 30% of sales while Freehold accounted for 70%.

Where to buy

52% of South Africa’s formal Affordable market is situated in traditional townships, but the activity ratio for sales as a proportion of stock is highest in the suburbs, particularly in the Sectional Title category.

In the suburbs, there are 1.1 million (75%) freehold properties and 300,000 (25%) sectional title properties.

On the other hand, almost all Affordable properties in townships are Freehold.

There are roughly 3,000 developments (Sectional Title or Estates) which contain more than 30 Affordable units, meaning that there are around 200,000 Affordable living units

The rest of the affordable market contains houses in townships or suburbs, with an average value of R520,000.

“However, many of these developments are ageing and have, over the years, declined in relative value in areas like Durban and Sunnyside.”

A small proportion of the Affordable developments are new developments, with only 10% of available stock developed in the last five years.

The age distribution of all Affordable properties (not only those in Sectional Schemes and developments) ) is mostly between 25 and 35, and Lightstone said that demonstrates that there has been little relative investment in recent years in this category.

Age of Affordable Properties

“There are developers aiming to address this, giving the start-up youth access to attractive and affordable housing and not limiting them to old neglected stock,” concludes Ivins-Downes.

This could be crucial as people under 30 make up a small share of the property market.

Age distribution of 2023 buyers of under R750k properties

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