There is a strong trend towards densification in the large metro areas – especially in Gauteng, indicates the First National Bank (FNB) Property Barometer.

Urban densification, or more people living per square kilometre, is often regarded as a benefit by city planners, who say that the same infrastructure can be used to service more people, instead of being extended for kilometres from the city’s business and operational centres to cater for urban sprawl.

It can, however, also increase strain on existing infrastructure.

The June FNB Property Barometer indicated that the first three months of the year saw a solid increase in the volume of private-sector financed residential building completions.

While the increased activity was seen across all sub-components, supply (or completions) of flats and townhouses was exceptionally strong, up 90.6% compared with the corresponding period last year.

Interestingly, the proportion of new flats and townhouses (as a percentage of total new housing units) is trending significantly above its long-term average of around 30%, stated the barometer.

By the end of June, these units have accounted for about 60% of new stock, up from 29% in 2015 and 13% in 2000.

FNB said this could be explained by South Africa’s increasingly urbanising population, rising densification, as well as changing consumer preferences, with buyers becoming more security conscious in their buying decisions.

Looking at the barometer’s newest statistics, released in August, FNB analyst Siphamandla Mkhwanazi says flats and townhouses have, year to date, accounted for about 61% of total new housing stock (volumes) in South Africa.

“The Gauteng specifically, these units accounted for 67% [of new stock] year-to-date, also decoupling from a long-term average of approximately 33%.”  

Mkhwanazi adds that Gauteng’s population is growing rapidly, and that 15.2-million people – or 25.8% of the country’s population – currently lives in Gauteng, up from 21% in 2002, or 10.3-million people.

The FNB Property Barometer for August indicates that average year-to-date nominal house price growth is 3.5% y/y, slightly worse than the 3.6% y/y recorded in the same period in 2018, but noticeably weaker than the 3.9% yearly growth for 2018.

At these levels, growth in house prices still languishes below inflation, using headline inflation of 4.5% in June.

On the positive side, there is mild improvement in demand, with properties entering the market for sale at a slowing pace. Consequently, the demand and supply gap has narrowed marginally, although it remains in favour of buyers.

This can be attributed to some easing in buyer despondency post elections, increased bargain hunting in the higher-priced segments and, more recently, lower interest rates.