Making a decision to buy property that will hold it’s investment value is one that needs to take into account evolving trends which The Homeowner Insights, launched in July 2015, seeks to assist with. It is a unique and first-to-market research report which delves into consumer behaviour and experiences during the different phases of home ownership.
Absa partnered with Columinate, a best-in-class digital market research company, to conduct the market research on behalf of the bank.
The research focused on individuals who are decision-makers when it comes to household matters and the sample included tenants of rental properties, established and new home owners, single parents, individuals intending to purchase a home within the next 5 years and investors who buy properties as investments.
Evolving property needs
In 2009, the world’s urban population exceeded its rural population for the first time in history and currently 54 percent of the world’s population (approximately 3.9 billion), live in urbanised areas. By 2050, the urban proportion of the population is projected to grow by 2.5 billion, reaching 66 percent of the total, according to United Nations estimates.
In South Africa, we have seen a growth in the urbanised population from 46.6% in 1960 to 64.3% at the end of 2014, according to data published by the World Bank These statistics raise some fascinating and vital questions around the evolution of property needs and on how – and how closely – people will live in urban areas in the not so distant future.
Density, scarcity and re-urbanisation
Scarcity of land around major metropolitan areas is becoming more and more pronounced as cities expand, urbanisation speeds up and transport infrastructure lags this growth rate.
An international study titled ‘The Business of Cities’, has tracked re-urbanisation i.e. the steady return of people, from suburban living, to traditional CBDs. The study found that many in big, traffic-clogged cities realised that they can spend more time with their families and have a better quality of life by moving back into the city from the suburbs.
Should this trend continue, full title properties will become more attractive to convert to higher density developments whilst remaining freestanding houses are expected to become more expensive.
Absa predicts that it may reach a point where these properties could become a luxury, and where in generations to come, free standing houses close to major metros could become the exception rather than the rule.
South African cities are still far away from the levels of urbanisation and densification experienced in the United Kingdom and Europe. Yet, while full title properties remain the most attractive property type, findings of the Homeowner Insights has shown that South Africans are steadily embracing higher density living as respondents show a higher demand for high density living than the property stock currently available.
Findings also highlighted the importance of ‘home fitting’ – i.e. finding a home that is the right fit for you at each stage of your life.
Upon delving a little deeper, it became apparent that property needs differ vastly according to life stage. third most important aspects when considering buying a property.
Feedback from respondents indicated that most families are still more drawn towards owning suburban, full title properties. The size of the garden stands out as a key consideration for families, who are looking for larger living areas and use the outdoors arguably more than the other groups of respondents.
Young independent singles showed the highest relative acceptance for flats and apartments, while young and recently married couples preferred townhouses and cluster developments.
After the unanimous preference for properties to be full title among all groups of respondents, the physical size of the house and kitchen were rated as the second and Single parent families have the largest attraction to sectional title properties, which offers lower maintenance and more affordable running costs.
Young couples showed a stronger preference than any other group to buying pet-friendly homes.
FTTH and Green Living
Interestingly, access to a fibre network for high speed internet access and green innovations such as solar power for geysers and pool pumps have made a prominent appearance onto the list of factors that influence respondents during the pre-buying decision making process. According to the Homeowner Insights, these relatively new advances outrank pools and staff accommodation, which have been deemed as the least important aspects to consider when buying.
It clearly indicates a shift in the way consumers are starting to think about where they live. While energy efficient homes are likely to sell at a premium in future, the effect on the marketability and value of these properties are still to be proven. Early indicators show that the technology to curb the effects of load shedding has high maintenance costs, and some believe it could make the property more expensive to maintain versus the value that it adds.
Full title property stock built in the 1970’s and 80’s commonly included both staff accommodation and pools, while younger generation respondents indicated that they have a far lesser need for these relatively expensive property characteristics. Advocates of green solutions are however of the opinion that, although these systems may initially appear to be a costly investment, over the long-run households will save a significant sum of money in reduced electricity costs and it will also limit the inconvenience of power cuts.
The installation of energy efficient and environmentally friendly power back-up, photovoltaic (PV) power generating systems as well as solar thermal geysers in homes have become a necessity in view of continued energy constraints and the sharply rising cost of electricity in South Africa. Neighbourhoods where fibre optic networks have been installed to improve internet connectivity (often referred to as ‘fibrehoods’), have shown accelerated property price growth in developed countries such as the US, where price growth of around 3% was recorded in a recent study conducted by the ‘Fibre to the Home Council Americas’ (FTTH).
Respondents to the Homeowner Insights ranked green energy solutions to run the geyser and pool pump as key deciding factors when choosing between different properties.
The exact effect of the change still has to be measured locally, but early indicators (e.g. visible market activity in our own ‘fibrehoods’ such as Parkhurst in Johannesburg) show that the addition of such networks in neighbourhoods has a marked impact on the marketability and price of such properties in our country as well.
When deciding whether or not to buy a property, young independent singles who participated in the Homeowner Insights cited the instalment of fibre optic networks and properties that offer high speed internet access in their neighbourhood as more important than whether the property has a pool or staff accommodation.
A couple of years ago, this issue was not a major consideration, however, as fast internet access becomes more of a real requirement in daily life, it’s status is moving from a luxury to a necessity, and the addition of optic fibre networks could soon be seen as a utility similar to electricity and water.
Affordability, the number of bedrooms, the size of the property and the area in which it is located were listed as the most important aspects to consider when deciding whether to buy or rent. After these ‘non-negotiables’ were considered, respondents cited maintenance costs as another key deciding factor.
Prospective buyers often underestimate the maintenance costs associated with owning a home. Full title properties already attract higher rates and taxes and require high electricity and water usage. In addition to this, full title properties often have additional expenses such as regular upkeep, garden and cleaning services, pool maintenance, security and ongoing maintenance costs.
Sectional title properties do not necessarily reduce the need for such expenses but by sharing costs with fellow owners through the monthly levy system, the upkeep of the common property and related expenses become more affordable.
Live, work, play
The idea of all-inclusive neighbourhoods where residents can live, work and play in the same area or even the same building has started making a more and more significant presence.
Globally, Millennials are moving to suburban ‘town centers’ where they can live, work, play, eat and shop – not just because it’s the ‘place to be’ but because there they have the luxury of having within walking or biking distance everything essential to meeting their hierarchy of needs. And everything else that lies outside their little ‘village’ should just be an Uber ride away.
As their Millennial kids leave home, ‘empty nesters’ are following the initiative of their children and making the move themselves. As parents approach retirement they are realizing their large, empty homes require too much maintenance, and the family vehicle continues to cost more and more to drive. Many are seeking homes that better suit their lifestyle; hunting for a smaller home which requires little or no maintenance, is in close proximity to all amenities, allows for a sense of community and the ‘lock up and go’ freedom retirees deserve.
Offering amenities and entertainment could therefore assist to reduce the size required for individual properties, and improve the convenience of living. The costs of accommodation could be significantly diminished by reductions in travelling and sharing of communal expenses.
Globally, Millennials are moving to suburban ‘town centers’ where they can live, work, play, eat and shop – not just because it’s the ‘place to be’ but because there they have the luxury of having within walking or biking distance everything essential to meeting their hierarchy of needs.
The last of the ‘full-titlers’
Globally, the property needs of consumers are evolving at a rapid rate. Cultural globalization, accelerated by a massive influx of foreign buyers in prime central locations, has helped spark new urban lifestyle and property trends that are reshaping the nature of real estate around the globe.
As an example, the way Londoners live is ever evolving: their wants and needs are influenced by urban lifestyles that prioritise work and socialising. Lateral living, where a home spreads laterally across a single storey rather than vertically across several, is becoming more widespread as growing numbers of buyers see the benefit of living on one floor. apartments and townhouses are therefore more suited to an investment strategy that follows these principles.
As a result, open-plan living and lateral spaces are a desired shift away from the enclosed rooms of people’s youth. Londoners also seldom entertain at home, and homes with gardens present itself as luxury living. The South African Property Market currently only consists of 12% sectional title units when compared to full title residential stock. Demand is however evolving in favour of sectional title developments, with this type of property steadily growing in popularity.
In comparison to trends in countries such as the UK, South Africans still prefer larger properties with gardens and swimming pools and entertaining at home, mainly due to pleasant weather conditions almost all year round. Our research has shown that full title properties have proven to be the most popular property type by far.
According to the findings of the Homeowner Insights, 90% of respondents stated that they will seriously consider buying a full title property, while 64% would consider a cluster or townhouse while 45% would consider buying an apartment or flat.
Investors and developers think differently about property than first-time and other buyers. They will most likely consider flats and apartments and more are drawn towards townhouses and clusters than individuals buying for primary residential purposes.
In order to maximise their returns, most investors focus on reducing costs and the need for maintenance. Flats, Developers on the other hand have a longer time horizon than buyers and have to consider factors such as future property requirements, evolving buyer preferences and what drives demand in new neighbourhoods.
In the last 20 years, StatsSA recorded that 26.6% of all completed properties, were sectional title units. During the last three years, 63% of all new residential development units financed by Absa, were sectional title units.
The drivers of demand, which include factors such as finance cost, regular maintenance and monthly running costs, scarcity of land and rapidly evolving technology, are expected to reduce the popularity of the traditional, large South African home with an expansive garden, swimming pool and staff accommodation.
Increased financial pressure on consumers may furthermore lead to an increase in the popularity of apartment living in newer, high density sectional title units where one could live, work and play in one community.
In generations to come – and if global trends are anything to go by – free standing, full title properties may well become an impractical and outdated luxury for most South Africans.
Points to ponder when buying a sectional title property
- When buying a sectional title property, an owner invests in a community rather than just acquiring a property.
- The common properties (e.g. swimming pools, club house, tennis courts) as well as the outside of the buildings are typically the responsibility of the body corporate to manage.
- Levies are collected which usually cover the cost of the managing agent, the maintenance of the common property, insurance and sometimes water and electricity.
- Sectional title properties often have much better security measures in place than full title properties.
- By sharing costs among the owners, complexes can appoint a better quality security company.
- The average selling price for sectional title units are still less expensive than full title properties. Though the characteristics do not allow for an easy like-for-like comparison, it is however much cheaper to maintain and run a sectional title unit due to the sharing of costs for maintaining communal property.
- Smaller property size could enhance the need for amenities close to the property, and encourage entertainment outside the home.
- Developers have realised the growing demand for this type of property and larger complexes could be more profitable to develop than individual free standing units.
- There are complexities that come with the sectional title community. Body Corporates determine, set and enforce conduct and management rules specific to the complex. Rules and regulations may be instituted or changed and it may not suit every individual owner.
- Investing in a sectional title complex could expose you to the responsibility for the overall health of the body corporate and other tenants potentially not paying.
- To renovate, expand or alter the exterior of your property, the body corporate will likely require you to obtain their approval, and they may restrict you from doing so.
- Sectional title scheme ownership basically means that you own a part of the ‘scheme’. Based on ‘part ownership’, owners of sectional title units are jointly liable for any and all debt of the body corporate.
- Should any owners not pay their levies, other owners are liable.
- The majority of sectional title complexes, especially apartments, do not allow owners to have pets.
- The close proximity of your neighbours does not bode well for those who enjoy peace and quiet.
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