By: John Loos, Property Sector Strategist at FNB Commercial Property Finance

FNB commercial property and finance property insights

Has the rate of “semi-gration”, be it of businesses or households, slowed? That’s what some say, and it is possible, but such a slowdown may only be temporary due to normal cyclical factors.

Recently, there have been claims that South Africa’s inter-regional “semi-gration” rate may have slowed, or even reversed. While good data in this regard is lacking, I suspect that there may be some truth in such claims. But the drivers are more likely cyclical, and short term in duration.

Recently, there have been some claims that South Africa’s rate of “semi-gration” has slowed down in recent times. “Semi-gration” is not a clearly defined term, but my informal definition of it is the phenomenon where middle-to-higher income households, along with certain businesses, choose to relocate to another part of the country in search of a better quality of life or business environment, as opposed to relocating to a different country.

The Western Cape Province appears to have been a major beneficiary of such “semi-gration” of highly skilled and affluent South Africans in recent decades, not only being able to attract more such semi-grants relative to its size, but also able to retain skilled and affluent labour better. KZN North Coast has been another noteworthy semi-gration destination.

Skilled and affluent semi-gration can be hugely beneficial to that region’s economy, as skills and spending power are key drivers of modern economies, and certainly the Western Cape appears to have been thriving relatively speaking. This has arguably been seen in its generally superior property market performance of late, both in residential and commercial property segments, and relative to its economic size its new commercial and residential development levels have been impressive.

But has the rate of semi-gration to especially been slowing, or even “reversing” back towards the likes of Gauteng, as some have claimed?‍

Firstly, it is important to state that I don’t have up to date data on either business or individual semi-gration trends.

But I have revisited our old estimates of repeat homebuyer (home owners selling in order to buy a different primary residence) migration trends that we did at FNB a number of years ago, using deeds data. And indeed, what we did see around the time of the Global Financial Crisis, when interest rates rose significantly to peak at 15,5% prime rate, and the economy experienced a recession, was a clear decline in the portion of repeat home buyers migrating across provincial lines.

This is absolutely normal in tougher financial times, for a greater portion of both individuals and businesses to stay put where they are and “ride out the storm”. This happens partly because their finances are tighter in a higher interest rate and weaker economic environment. Because relocation is costly, especially inter-regional relocation, and business and employment opportunities temporarily become scarcer as an economy slows and interest rates and inflation rise.

Therefore, whereas we had estimated in 2005 that 14,8% of total repeat home buyers had relocated to a different province, this percentage had declined to a lowly 6,2% in 2008 and 2009 (and this was in an over all market that had shrunk in transaction volumes), interest rates having risen by 500 basis points to peak in 2008, and the economy slowing into contraction by late that year. We did not do such studies on business relocation, but would assume a slowdown in movement here too.

Following the post-2009 recovery, and interest rates having fallen sharply once more, we saw estimates of interprovincial repeat buyer migration recover to 16,2% of total repeat buying by 2017, the last year that the study was conducted.

Fast forward to the present. Interest rates rose very significantly by 475 basis points from late-2021 to May 2023, and have yet to start declining, while the economy in 2023 had slowed significantly too.

Such a weaker economic and financial environment is likely a recipe for a lower rate of migration of both individuals and businesses between regions, until such time as economic conditions pick up and interest rates decline.

But it is important to understand that such a slow down in semi-gration is probably only cyclical in nature, which means short term in duration.

Arguments that property in Cape Town and surroundings has become too expensive, causing such a slowdown in business and household migration may be partially true. But if one sees the property prices of major global cities such as London or New York, and how skilled labour and business from all over the world still flocks to those centres, one realizes that Cape Town is probably far from being “prohibitively expensive”. Nevertheless, it has become less affordable. But that may not mean that the semi-gration process is reversed, and higher income people and business returning to the likes of Gauteng on a net basis (inflow minus outflow), but rather that the next semi-gration destinations are being identified, and we have arguably been seeing this play out as the Southern Cape and West Coast towns have become more sought after in recent years.

In short, I suspect that there is an element of truth in claims that the rate of interprovincial and inter-regional semi-gration of both people and businesses has slowed of late, although I don’t have up to date data as evidence. But I see much of any such slowdown as likely to be cyclical, constrained by a tougher economic and financial period for households and businesses, with interest rates significantly higher than 3 years ago. Such times typically bring about a slowdown in many things, from home relocation to business relocation or regional expansions. It is typically a time when more businesses and individuals“ stay put and ride it out.

But in the FNB Commercial Property Broker Survey, the key reason for owner-occupier properties being sold is still to relocate to locations or regions with better municipal and utilities services and infrastructure. Many municipalities in the Western Cape region are perceived to be relative “out performers” in this regard. And until such time as other major economic regions improve their own competitiveness in this regard, a significant level of “semi-gration” of both households and businesses (businesses either through migration or regional expansion) looks set to continue.

This, in turn, is expected to keep the Western Cape property development market’s share of the national development market disproportionately large relative to that region’s economic and property market size for the foreseeable future.