The South African Property Market and Employment

There’s good news and bad news for the real estate industry on the employment front this month, says Berry Everitt, Managing Director of the Chas Everitt International property group.

“On the positive side, the new International Business report from professional services group Grant Thornton suggests that SA workers will receive higher wage increases than those in most other countries this year.

“This report is based on interviews with 3450 CEOs at the end of last year, and states that about 68% of South African businesses will increase salaries in line with inflation this year, while some 26% plan to award above-inflation increases compared to only 15% in the other BRICS (An association of emerging national economies including Brazil, Russia, India, China and SA) countries.

“And from a South African property point of view, this means that those in employment this year will have an improved chance of being able to qualify for a home loan and afford their own home.”

What is also encouraging, he says, is recent news from recruitment group Adcorp that income inequality between the races, and especially between blacks and whites, has declined sharply in the past decade, and could be eliminated entirely by 2020 at the current rate of progress, which sees the average white employee’s income rising by 5,3% a year while the average black employee’s income rises by 14,9% a year.

“On the negative side, however, employment numbers go up and down like a yo-yo from month to month, demonstrating the lack of sustainable progress being made in creating new jobs in South Africa and, by implication, an expanded South African property market.

Writing in the latest Property Signposts newsletter, Everitt notes that over the past six months, the net gain in jobs seems to have been only around 20 000, with probably half of those being in the informal sector.

“In addition, the latest statistics show that the number of formal employers continues to decline, having shown a drop of 2000 in the last quarter of 2012, and standing now at 10% fewer than at the start of the global financial crisis.”

It is thus not surprising, he says, that ABSA’s latest SME Index shows an increase in the number of people who are self-employed – to some 1,25m, or 10% of all the working adults in the country.

“But while the entrepreneurial spirit shown by these people, often in the face of retrenchment or company closure, is to be admired, we all know that it is notoriously difficult for self-employed people to obtain home loans, so most of them are effectively out of the property market for now.”

Consequently, he says, although both residential housing demand and South African property prices have been rising steadily for the past few months, the economic growth rate is going to have to rise and send employment numbers up before the next real property ‘boom’ can realistically be expected.