Property Talk

The recently published ABSA Housing Review provides some interesting insights into our South African property market. Did you know that there are approximately 6,21 million residential properties in South Africa with a total value of R4,29 trillion. What I found fascinating is that of all these homes only 2,18 million or 35.1% with a total value of R2,35 trillion were bonded and more than 4 million (64,9%) with a total value of R1,94 trillion were non-bonded. At first glance it seems like the banks are missing out on a huge market for potential mortgage finance as they seem to be ignoring over 4 million homes or 64,9% of all residential properties. But what struck me is that a mere 35.1% of the total residential stock has a value far in excess of almost two thirds of the remainder. On closer examination we see that if you consider the freehold properties, excluding estate properties (such as Zimbali, Simbithi, Brettenwood and Dunkirk as examples), these properties make up 83.5% of all the residential properties and of these only 29,7% are bonded and a whopping 70,3% are un-bonded. However, if you consider all sectional title properties in the country, excluding estate properties, there are only 707,683 of them and they make up 11,4% of the total residential stock. Of this grouping of homes, 64.4% are bonded and 35,6% are un-bonded - almost the exact opposite of the freehold stock of residential homes outside of the estates. Considering only the estate properties, there are 318,805 of these (freehold and sectional title), of which 64,4% are bonded and 35,6% are non-bonded. So what is going on with all these non bonded properties? If we consider looking at the same properties but not in terms of number of homes but in terms of the value of the homes, the picture becomes a little clearer. Of the total value of our South African stock of homes of R4,29 trillion, 54,7% by value, or R2,35 trillion is bonded. Considering the freehold properties outside of an estate by value, we find that roughly half or 54,7% are bonded. A pool of R1,44 trillion freehold homes by value, outside of an estate, are still un-bonded. This is Staggering with a capital S! The sectional title pool by value is represented by a total of R644 billion of which R379 billion or 58.9% is bonded. As much as 41,1% by value is un-bonded, which is also surprisingly high. All our estate properties in South Africa amount to R646 billion by value, of which 63,4% or R410 billion is bonded and 36,6% or R236 billion is non-bonded. This is more in line of what one would expect to find across a typical residential property market.

What the figures suggest is a very large number (4 million) of relatively low value properties (mostly freehold and mostly outside of an estate) that are not being serviced by the mortgage market. Considering the demographics of South Africa and the credit worthiness of the bulk of the owners of these properties, it could be possible that the commercial case for servicing this market of far higher risk profile property owners is suggesting that these consumers are too risky to service. However the potential within this largely "un-serviced" market cannot be ignored and represents an unbelievable opportunity of releasing equity from the existing stock of fixed property, through leveraging these assets by means of mortgage finance, and thereby to free up that capital to search for higher yielding investments such as new businesses and trade. This could be South Africa's single biggest opportunity for wealth creation amongst the group of the population that need it most. Providing mortgage finance to this pool of almost R1,5 trillion in residential homes could be a game changer for our country.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com