When looking for your next property investment, the township property market may not jump to mind. But you could be missing out on an opportunity. Townships are becoming more sophisticated and ultimately transforming themselves from little townships to fully functioning suburbs. What makes the township property market so appealing and how do you get a piece of the action?
The township property market could potentially have South Africa’s most exciting investment opportunities.
The township property market is not a new thing, it started back in the ’90s. And since then, the market has been booming.
FNB 2016 “Township” Property Barometer research found that the township property market was rising faster than the richer suburb areas.
According to this research, township markets do appear to be ‘late-comers’ to property cycles, lagging behind the suburban property markets.
The study also found that the township market is more volatile than suburban areas, experiencing higher price inflation peaks and heavier drops.
Lower-income households are more sensitive to economic cycles and interest rate moves than higher-income households. High-income communities have a stronger financial ‘buffer’ in tough financial times, making it easier for them to cope with financial stress.
Although townships are still seen as low-cost housing or Government housing, some areas in townships are starting to resemble the rest of South Africa’s property market.
Private Property found that the total estimated value of the township property market is around R240 billion with an average of R174 000 per property. There are on average 175 000 properties bonded for a total of R22 billion.
Between 2003 and 2019 the market has had a growth rate ranging from 10% to 34%, with 2008 reaching a growth rate of 21% compared to the previous year.
Research has shown that over the past 10 years, the township property market has steadily grown. In 1997 prices were ranging from R50 000 to R70 000 to R240 000 and R280 000 in 2019.
The biggest increase was between 2005 and 2008, where the market saw a 40% increase in some areas.
What makes the township property market tick?
Two main factors keep the township property market running. The first being RPD housing. The second is the continuous development in townships.
Reconstructed and Development Programme (RDP)
For the past two decades, townships across South Africa has seen an introduction of Government subsidy housing, commonly known as Reconstructed and Development Programme (RDP).
Almost half of the registered properties in South African townships are RDP housing.
RDP houses are built by the Government and given to low-income families across South Africa. These families do not rent, they own the property. Owners of the property can legally sell the property once they’ve lived in it for 8 years. It is illegal to rent out an RDP property or sell it before the 8 years.
Once the 8-year hold has passed, RDP property owners either sell their property or hold on to them for a little longer. Once these properties sell, they sell for fairly cheap. You could pick up a good condition RPD house for between R200 000 and R300 000.
Lightstone Property has indicated that median transaction prices for RDP houses and other forms of subsidised properties in 2014 increased by more than 500% compared to previous years. While non-subsidised houses grew by 300% over the same period.
The reason being that RDP houses were selling at a lower price range than non-subsidised properties. Resulting in larger profit margins.
These properties do need some TLC, but if you buy in the right area at the right price, you could have a great investment on your hands.
Infrastructure development in townships has helped boost the township economy in various ways.
New roads and streetlights have helped communities grow and be more self-efficient. The development of malls, shopping centres and transportation systems make it more convenient to live in a township.
One of the most notable developments in a township is Vilakazi Street in Soweto.
Tourist attractions like Vilakazi Street have spread its wealth across areas in Soweto including Orlando East, Orlando West and Diepkloof.
According to Francois Viruls improving township environments with urban regeneration programmes or the introduction of infrastructures has the potential to move the demand of property upwards. This will help increase rental prices, capital values and development activity.
The development of malls, shopping centres, new roads, streetlights, revamped transport systems etc. has boosted the economy. In turn, making living more convenient for people living in these areas.
These developments have increased the selling prices of properties in townships. Just like the suburbs, the same rules still apply; location, location, location.
Properties in areas close to a mall have increased in price moving from R300 000 to R500 000, just because of their location.
Location, location, location
Private Property asked a few realtors about their experience when investing in townships. Location plays a huge role in making property investment successful or not.
KK Mvela Properties owner, Khumbulani Mvela, has been an estate agent for 12 years. He claims that “the market is booming”.
“There is always a demand for properties in these areas and there is a waiting list for properties. The problem is of course price and affordability. Only 20% of prospective buyers can actually afford to buy after you have taken into account the National Credit Act and other criteria.”
Mvela says that Umlazi has the best investment opportunities. But investors will have to move quickly.
Although properties in Umlazi may be cheap, Mvela predicts that this area will lose its shine due to crime.
Mvela predicts that buying in KwaMashu would be a better investment. Properties there are great for buy-to-let investors while prices are low.
“In KwaMashu you can pick up something for R130 000. In two years it will be more popular than Umlazi.”
Charity Maphosa specialises in the middle to low-income property markets and shares her thoughts on Khyaleitsha and Blue Downs investment opportunities.
According to Maphosa, the township market is active but it’s nothing special. She says that there’s plenty of interest from buyers but not enough stock to go around.
The high demand from buyers isn’t met because residents aren’t in a rush to move.
Another agent in Khayelitsha, Mitchell’s Plain and Standfontein said that the market is slow. He’s only sold 6 properties in the past 3 years.
According to Maphosa a lot of people are moving to the Eastern Cape to retire.
Anthea Bressick has been involved in the township property market for about 2 years. She is very excited about what Soweto has to offer.
“I’m so positive about Soweto. It’s such a booming area. There’s reinvention going on there. It’s not a township anymore, it’s a suburb.”
Bressick suggests Soweto properties to her clients for various reasons.
“It’s safe, there’s a sense of community and such a rich cultural heritage. The rest of the market is taking strain, but the township property market has lots to offer.”
Her real estate company is getting about 2 000 bond applications a month, just from Soweto.
According to Bressick Soweto is full of good opportunities. “A mansion in Soweto goes for about R450 000 – it would go for double that if it were in Edenvale or Benoni.”
Soweto offers a great return on investment as well, Bressick says that “I am seeing about a 60% return in the last two years.”
Bressick says that there’s a huge demand for rentals in the market. The demand is high for rentals between R2 000 to R3 000 per month, but there’s just not enough stock to meet the high demand.
Bressick predicts that Soweto, Mamelodi and Cosmo City are the areas to watch out for.
“We’re going to see great things happening in those markets.”
The risks of township investment
Every investment comes with its risks. And the bigger the reward, the bigger the risk.
Private Property spoke to an anonymous Durban-based investor who shares his experience and explained some of the risks involved in township property investment.
This investor buys and sells repossessed township properties. He’s been sitting with a house in Gugulethu, Western Cape, for 2 years. He bought the property for R35 000, but he can’t sell it because the occupants refuse to move out. Authorities aren’t stepping in to help evict them either.
He claimed that “I’ve got plenty of interested buyers, but every time they go to view the place, the occupants won’t give them access. They scare the buyers off by claiming they own the house. I had similar problems with a property in KwaZulu-Natal, except the previous owner almost destroyed the house before he eventually moved out.”
In 2015 Property economist, Prof. Francios Viruly, highlighted that the township property market was rising faster than the rest of South Africa.
This was the boom year for township investments, mainly because of an 8-year prohibition against selling township houses. Residence and investors took advantage of this by fixing up properties and selling them off.
However, 2018 started painting a different picture. The township market started to lag behind the rest of the market. Which meant the low economic growth had a huge impact on middle- to low-income earners.
Viruly pointed out that townships are still in the shadows when it comes to the property market. The is not being covered by any weekly newspaper property section. Which in return gives an impression that South Africa is flooded with properties over R500 000.
When, in fact, 60% of properties in South Africa are under R500 000. Which means at least 50% of the total market is not being reflected.
According to Viruly there is a market, but it’s not transparent.
Although there’s continuous growth happening in townships, residents have mixed feeling about staying in townships or moving outwards to suburbs.
Some residents feel that this is their home and they won’t move. Whereas others feel that they could have a better opportunity elsewhere.
According to Quinton Mtyala, most people sell their property because they’re moving to better areas.
Township investment opportunity
Many young black professionals would rather buy a property in a township because it’s more affordable than the suburbs. They don’t necessarily want to live there, but it’s what they can afford.
If you’re eager to invest in the township property market, Prof. Francios Viruly recommends that you look at buy-to-let properties. According to Viruly, these properties will give a good return compared to selling the property for a higher price.
Flipping properties (buying to fix up and sell) was the golden goose of 2015. Viruly predicts those days have come and gone.
Despite Viruly’s views on the township market, he still believes that investing in a township property is worth it.
However, investors will have to adjust their investment strategies and align themselves to current market conditions.
Viruly said “I still think that the returns and rentals compared with the capital value (yield) are attractive. But it is a less liquid market. There is less info about the market and there is still a perception about higher risk. I’d say it’s easier to buy-to-let, but if you buy for capital appreciation, I would be less convinced.”
The township property market has a lot to offer. But it is very difficult to track what the market is up to because it is so poorly covered.
Ultimately investors will have to carefully balance their risk and returns. Investors can’t solely rely on the market for investment advice. They’ll have to get their hands dirty and reach out to experts in this market before making an investment decision.
The township property market has a long way to go before it’s fully integrated with the rest of South Africa’s housing market. Before that happens, investors have to tread lightly when investing in this market.
The location will play a bigger role in the success of the investment compared to suburban areas.
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