Unexpected property market in South Africa shows strong growth

South African homesteads have experienced strong value growth over the past decade, and demand for these properties shows no signs of slowing. 

A homestead is a cluster of several houses, typically occupied by a single extended family and often with an attached enclosure for livestock.

They are traditionally located in provinces with large rural areas, such as the North-West, Limpopo, the Eastern Cape, and KwaZulu-Natal. 

Standard Bank has also said that these provinces have seen a notable rise in the share of building loans issued in South Africa over the past three years. 

The bank said high-income clients are increasingly taking out loans to build homesteads, though not all are financed through home loans, as some properties are built on communal land or in areas without title deeds.

This trend is especially common among clients working in major economic hubs like Johannesburg and the Western Cape who invest in large homes for their families in their home villages to create a multi-generational legacy.

However, a key challenge is that these properties – sometimes worth millions – often have no title deeds. 

“When building such homes, it’s crucial to document who built on the land versus who it was allocated to to avoid disputes later,” said the head of private and personal banking at Standard Bank Chiko Manokore.  

“This should be clearly outlined in a will or other legal documents to ensure the property is inherited as intended in the event of the owner’s passing.”

Fewer than 15% of South Africans have a will, according to the Master of the High Court’s 2022 report.

Manokore warned that failure to properly document property ownership could jeopardise the transfer of wealth to future generations.

Increased demand for rural property has inevitably resulted in the value of such properties rising.

Informal economy expert GG Alcock estimated that former rural homelands have more houses valued at over R1.5 million than Cape Town and its surrounding areas.

This insight is based on data from Stephen Walters, founder of Galaxy Retail Solutions, who leverages Google Earth and AI technology to identify optimal locations for retail outlets.

“They use these tools to map housing trends across South Africa, helping determine where to open new KFC branches or supermarkets,” Alcock explained. 

“There are significantly more homes valued at R1.5 million or more in the former rural homelands compared to the City of Cape Town,” he said.

“Regions like KwaZulu and Transkei, part of the former homelands, boast more high-value properties than the stretch from Melkbosstrand to Gordons Bay.”

Alcock clarified that these houses, valued at R1.5 million or more, are found exclusively in rural areas and do not include urban regions. 

“Each of these homes was constructed without formal credit, financed instead through money saved via societies or stokvels.”

Increased demand for properties in rural parts of South Africa have driven an expansion of the economy in these areas as companies look to capture value from the growing sector.

Data from logistics companies exemplifies this growth, with City Logistics saying its hubs in rural areas have experienced growth north of 80% in recent years. 

The company explained that this has been driven by large, established retailers looking to tap into the rural and informal markets. 

Apart from increasing demand in rural areas, there has also been a noticeable surge in warehousing space on the edge of urban areas, closer to informal settlements and townships. 

However, FinMark Trust’s annual FinScope Consumer South Africa for 2023 revealed that the formal sector cannot absorb the amount of unemployed people in the country. 

According to their research, the number of employed people climbed from 12.6 million to 17.4 million between 2003 and 2023, representing a 4.8 million-year increase in employment. 

“However, this employment growth is insufficient to keep up with the 18 million population growth during the same period,” the report found.

While the informal sector pays lower remuneration, which makes it less attractive, its role in supplementing income is crucial.