We all know retirement facilities are the new big investment opportunity, and research shows that the R1.5 million price mark is the sweet spot.
South African population dynamics
The most recent census conducted in 2011 put the total South African population at 57.7 million people. Of this number, 5.4% were aged 65 and over. When compared to the same figure in 2000, only 3.7% were aged 65 and over. The fact of the matter is that the South African population is living longer. This is supported by a report issued by the United Nations Secretariat entitled World Population Prospects, which indicates that life expectancy in South Africa was recorded at 53,8 years in 2000 compared to a projected 63.7 years in 2020.
Now consider that the same 2011 census projected that the South African population of 57.7 million would increase to 61.8m in 2030 and to 65.4 million in 2040. This means that, based on the 2011 figures, South Africa sported some 3.1 million people in the over-65 category, which based on projections will increase to 3.3 million people over 65 in 2030 and to 3.5 million people over 65 in 2040.
Not every person over 65 is in the financial position to retire, largely due to the levels of economic and social disparity that earmark South African society. In fact, a 2018 report entitled The South African Retirement Reality Report, published by 10X Investments, a local investment manager with more than R11 billion in funds under management, found, among other things, that 62% of South Africans don’t have any form of retirement plan or little understanding of their existing policy. These findings were sourced from a survey of more than 1 million South Africans.
When this statistic is considered in conjunction with the 2011 census figures and the projections for the South African population, it can be estimated that 1.184 million South Africans were aged over 65 in 2011, and possibly in a financial position to retire to a lifestyle estate. This figure increases to 1.254 million people projected for 2030 and 1.342 million people projected for 2040. Everybody needs a roof over their head.
The South African Retirement Reality Report also revealed one other interesting statistic: a gender pay gap whereby women are understood to earn approximately a quarter less than their male counterparts. As this pay disparity is corrected via various mechanisms including the Employment Equity Act 55 of 1998, such correction bodes well for future retirement savings and provision of retirement-related services, such as housing.
This is a compelling argument in terms of projected demand for increased retirement village units. And herein lies the beauty of developing units at the R1.5 million price point, in such user-specific developments backed by this demand. At this price point, developments will appeal not only to retirees wanting to move in immediately, but also to younger people looking to secure a retirement facility while adding to their property investment portfolios.
A brief review of rental options in affordable developments across South Africa reveals apartment rentals of R8,000 per month and simplex rentals from R11,500 per month (these figures may vary depending on services on offer and location of estate). But, if they have healthcare and other facilities on site, rentals in retirement estates can easily go to R20,000 per month, which makes the ROI on such a unit pretty spectacular.
Developing units at a comfortable price point backed by a steady stream of demand? Logic seems to suggest that the future for R1.5m looks worthy of further consideration.