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Townships Swept Up in S.Africa’s Property Boom

February 22, 2006

By Mboniso Sigonyela

SOWETO, South Africa (Reuters) – After a search and waiting period of six years, Russell Rivombo is about to move into his luxury three-bedroom, double-garage home.

His pride and joy is not in the northern wealthy suburbs of Johannesburg but in Soweto, a township south of South Africa’s financial capital created for blacks under apartheid.

“I asked the agents for the place a while ago, I had the approval (loan) … but there was just nothing in the areas I wanted,” Rivombo said.

Banking group First National Bank’s (FNB) home loans unit says a residential property boom, which has been a feature of Johannesburg’s wealthy and mainly white suburbs, is expected to spread to the townships.

Economists estimate that average house prices in South Africa’s 200 billion rand ($32.8 billion) a year market have risen by 229 percent in the past six years.

Prices in the townships have risen less sharply because of concerns over crime, buyer reluctance to sell and lack of new developments.

“They are now catching up. There was no commercial activity, while the (former white) suburbs were becoming mixed use areas which is why they became popular,” says FNB property economist John Loos, referring to house and office developments.

Living in townships was no longer seen as inferior, he said.

Soweto’s oldest estate agents Mashigo Properties says rising demand is a result of population growth and affordability.

South Africa’s lending rates, combined with rising disposable income thanks partly to tax cuts, low inflation and the growth of the black middle class have contributed to a record rise in property prices.

THREE WEEKS TO SELL

Jeff Mashigo, the first agent to operate in Soweto, says the supply of houses has not matched rising demand.

“We are seeing a reversal of what happened in the late 1990s when lending rates went as high as 25.5 percent,” he added.

Prime lending rates stand at 10.5 percent.

Research shows that, for every property on the market in the townships, there are seven potential buyers and it takes on average about three weeks to sell a property compared with three months in the areas that were traditionally whites-only.

FNB says it found on average 94 percent of sellers in the Johannesburg townships achieved their asking prices compared with only 47 percent in areas to the north, including the posh Sandton district.

“Naturally that will push up prices and we are seeing that … in the last two years a property you could get for 250,000 rand is now selling for around 400,000 rand,” Emma Ledwaba of Acutts, an estate agent operating in Thembisa Township, told Reuters.

Real estate professionals in the townships were more buoyant than their counterparts in the Johannesburg suburbs, expecting an increase in activity in the first quarter of 2006 compared with expected stability in the rest of the market.

“We’ve seen more agents opening offices in the townships and that tells you that there’ll be more growth,” Jacques du Toit of South Africa’s biggest lender Absa said.

Mashigo, who sells about 20 million rand worth of property a year, refused to call the current trend a boom. He said the market was distorted by the imbalance between demand and supply. “How can it be if there’s nothing to sell?” he asked.

CLOSE TO COMMUNITIES

Demand for township houses is driven by professionals, such as teachers, nurses and police officers, who want to live close to the communities where they work.

FNB home loans chief executive Ed Grundel says the township market was slow to catch up because of factors including risk for developers, restrictive property laws and small margins.

There are developments in most townships as retailers chase new markets, especially black consumers, a tour of several Johannesburg townships showed.

“It’s encouraging that we do not only get shopping centers but the whole infrastructure for communities including facilities like schools, and that will encourage residential developments,” Grundel said.

One such development is the 645,000 square feet Maponya Mall in the heart of Soweto and two others to be completed this year as businesses chase Soweto’s buying power, estimated in 2003 at more than 10.5 billion rand, with 4.3 billion rand of that available for consumer spending.

Mashigo says the rise in township housing prices would only apply to homes up to 500,000 rand.

“I don’t want to name anyone, but there are properties here which if they were taken to the suburbs could sell for 2-3 million rand but can never sell for more than a million.”

The houses in Soweto’s most exclusive area were built in the 1980s for the super rich when black people were still barred from buying houses in white-only areas.


Source: reuters



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