Is South Africa's Residential Property Investment Losing Appeal?

South Africa’s 153 000 private residential property investors, who own 460 000 South Africa’s private residential property investor market, consisting of around 153,000 individual investors who own approximately 460,000 properties, is showing signs of cooling off.

These investors, defined as individuals who own three or more properties (purchased—not inherited), with a minimum value of R100,000, are key players in the market. However, Lightstone’s latest data reveals a concerning trend: after years of consistent growth, investor volumes levelled off in 2022 and dropped further in 2023 and 2024.

Key Insights:

Declining Investor Activity

• Lightstone’s analysis of investor data from 2006 to 2021 shows strong year-on-year growth in property investments until 2022. In 2023 and 2024, however, investor volumes have started to decline. While it's too early to call this a definitive trend, the data signals a shift.

Property Ownership Breakdown

• About 60% of the 153,000 investors own three properties, 20% own four, 10% own five, and another 10% own six or more.
• 70% of investment properties are owned by a single investor, with only a small proportion (0.7%) having more than two investors involved in ownership.
• Ownership excludes properties owned in trusts and companies

Focus on Residential Properties

• Residential properties remain the dominant choice for investors, comprising 87% of all investments. The remainder of the portfolio (13%) is mostly in non-residential properties, with the majority (75%) in non-metro areas, suggesting agricultural use. However, non-residential property volumes have dropped by 8% post-COVID.

Metro vs Non-Metro Trends:

• Non-metro areas have seen a significant decline in investment stock, particularly since 2019. Conversely, investor activity has held steady or grown in metro areas, such as Johannesburg (+2%), Pretoria (+2%), and Durban (+1%).
• Cape Town’s market, in particular, has experienced a cooling period, driven by stock shortages and escalating property prices, leading some investors to sell off assets at higher prices.

Property Type Preferences:

• Freehold properties within estates have seen a decline in investor interest (-4%), while Sectional Title units within estates (+4%) have gained popularity. Sectional Title units in traditional complexes have also attracted significant attention, with 16% of such properties owned by private investors.

Outlook & Advice for Investors

1. Market Flattening: The slowdown in investor activity suggests that the residential property market may be reaching a plateau. Investors should carefully assess local market conditions, especially in high-demand metro areas versus struggling non-metro regions.
2. Investment Diversification: As interest in freehold properties declines, investors should consider diversifying into Sectional Title units, particularly within estates. These properties are becoming more appealing due to lower maintenance costs and the demand for more affordable housing options.
3. Focus on Metro Areas: While Cape Town's market may be cooling, other metro areas, such as Johannesburg and Durban, show growth potential. Investors should keep an eye on these markets for opportunities, especially those driven by supply-demand dynamics.
4. Adapt to Changing Conditions: The post-COVID environment has led to shifts in rental yields and property values. Investors may need to adjust their portfolios to account for changing rental income trends and the impact of higher property prices in sought-after areas.
5. Capitalising on the Current Market: For those in Cape Town and other high-price metro areas, the current market may offer an opportunity to exit at profitable levels, especially with the rising trend of selling to capitalise on capital appreciation.

While South Africa’s residential property investor market is showing signs of slowdown, there remain opportunities in certain areas and property types. Investors should stay informed, adapt to market trends, and consider diversifying their portfolios to weather potential market changes.