South African real estate market dynamics

Dear MMangani,

Thanks for asking such interesting real estate related questions. I will try to answer as thoroughly as possible.

Market forces in the South African property market.

The same market forces that apply to other real estate markets around the world apply to the South African real estate market. There are, however, a few dynamics that are probably uniquely South African:

House prices fluctuate according to levels of demand and supply. But after the property price boom the South African market has experienced since about 2000, affordability has come to play an important role in the sale of residential homes.

Immovable property and ownership of land is a sensitive and potentially volatile aspect of the South African economy, due to the selectively restrictive laws that applied to South Africans during the ages of colonialisation and apartheid. The process of transformation of the ownership of land is far from complete, and demand for land and real estate, combined with relatively favourable interest rates has seen prices skyrocket.

The demand for South African real estate experienced a major growth spurt after 1994, when a huge portion of the South African people first became free to own real estate wherever they pleased. The opening up of the economy to all South Africans, equity of employment, affirmative action and regulations in favour of Black Economic Empowerment (BEE) put money in the pockets of a large section potential property buyers that were never before in a position to purchase immovable property.

Since then, international demand for luxury residential real estate in some of the most sought-after parts of the country has also exploded, probably because of the improvement in the international profile of South Africa after apartheid, combined with the beneficial exchange rate for international buyers.

The demand for residential property and the change in South African buyers' lifestyles, due to modernisation, economic growth, urban sprawl and rising crime has seen to it that communal property ownership schemes (mainly sectional title developments) emerge as the most popular alternative to freehold properties for residential purposes. And this is also the sector of residential property development that has seen the biggest growth in new developments.

Another important factor that will most probably influence the property market as well as every other aspect of the South African economy, is the crippling energy crisis that recently hit South Africa.

After 1994, the South African government also embarked on a large scale program of providing free low cost housing to the millions of people who live in squatter settlements all over the country. The initially positive impact of this initiative on "informal housing" however hangs in the balance, because the 8 year restriction on the sale of the first lots of these houses have only recently expired. But some rumours and reports suggest that an alarming number of these first-time homeowners decide to sell their properties and move back to informal settlements. (I guess that is the curse of an open economy.)

South African property sales

The sale of immovable property in South Africa is very well documented, thanks to an excellent system of title registration. All real estate transactions are registered with the South African Registrar of Deeds.

The four major banking institutions periodically release research and statistics on the property market. And I'm sure that they would be willing to provide you with historical data, which might not be available from their websites, upon request.

Standard Bank regularly publishes their Residential property gauge (I had to employ some trickery to find you a direct link). Their latest news is that South African property prices are experiencing a period of non-growth.

ABSA Bank regularly publishes their property research here. Their latest news is also a slowdown of house price increases.

New homes vs. existing homes

Property24 carried an article on the closing gap between new an existing home prices, but I guess you're looking for something with a little more substance, yes?

The Social Housing Foundation publishes some interesting research on social housing in South Africa here. The National Home Builders Registration Council of South Africa (which would be the logical place to look for the info you seek) has a crappy website that won't be of any help to you. If you really want to go there, you can visit this address: http://www.nhbrc.org/ , but note that I am not linking to it.

Statistics South Africa has some stats on new property developments here. I hope this is what you're looking for.

Marketing of new homes in South Africa

New homes may either be marketed by the developer, or real estate agents appointed by the developer. There is no hard and fast rule here. Every developer will decide for himself if it is in his interest to make use of the services of a real estate agency or not.

If a real estate agency is involved in a sole or exclusive agency capacity, the agents often work at a drastically reduced commission percentage, because they can move a large quantity of sale stock in a relatively short period of time.

Real estate agent earnings

Asking how much a real estate agent earns in a year is like asking how black a zebra is, IMHO.

Real estate agencies have different commission share agreements with agents, and the same agency might have different commission sharing agreements with different agents in the same agency. Some agencies may pay 50%, others pay 90%, while yet others might pay as little as 10% or less, combined with a fixed monthly salary.

And then we get to the other factors that influence real estate agents' income: The real estate market, the agencies' marketing strategies, the agent's drive and resilience, etc.

Real estate agents are like zebras - each one is unique - and so are their incomes.

I hope this answer helps you with your thesis. Feel free to ask again, if you need to!