Increasing numbers of South Africans have installed alternative or backup electricity solutions over the past year as the unprecedented level of load shedding has taken its toll.
These installations are more prevalent in higher-priced segments as these homeowners can afford them and have “superior access” to funding options, says FNB senior economist Siphamandla Mkhwanazi.
Only 56 percent of owners in the affordable market reported an increase in alternative power installations compared to 81 percent of those with higher incomes, reveals the Bank’s Estate Agent Survey for Q3 2023.
More than 75 percent of surveyed agents report an increase in the installation of alternative electricity solutions, with results suggesting that 71 percent of homeowners opt to purchase these systems outright, even if using home loans or other forms of credit to finance the purchase.
“Only three percent opt for rental solutions through independent providers, while 27 percent opt for a mix of purchase and rental of one or more components of the system.
“Interestingly, the picture looks different in the affordable market. Here, 54 percent opt for a mix of rental and purchase, once again signifying variations in affordability as well as access to funding.”
Surprisingly though, Mkhwanazi says 64 percent of agents believe that pre-installed energy solutions are not a key consideration for prospective buyers. While this may seem counter-intuitive, given the disruptiveness of load shedding and the increased investment into alternative energy sources by households and businesses alike, the truth is more nuanced.
“Fifty-six percent (56 percent) of agents in the affordable market state that energy solutions are, in fact, a key consideration for buyers in their market. In the traditional market, only 30 percent of agents believe that solar installation is an important consideration. This means that wealthier households are more indifferent, likely because they have superior access to savings and funding options, and therefore can always install these themselves with relative ease...”
This also allows buyers to customise their installations and, thereby, ensure they eliminate the risk of information asymmetry.
“Solar systems depreciate over time and require regular maintenance for optimal performance. Thus, having greater control of the type and quality of the installed system would give these buyers peace of mind. By contrast, lower-income households have limited funding options and would much rather buy a house pre-installed with a solar system.”
He says this may be compounded by socio-economic factors such as security concerns during load-shedding hours, which tend to be more acute in lower- to middle-income areas.
In line with the findings by agents that properties with pre-installed features are not hugely in demand, most buyers are not willing to pay a premium for solar systems. Once again, there are “critical nuances” across the purchase price. Half of surveyed agents (50 percent) in the affordable market suggest that buyers are willing to fork out a premium, compared to just 18 percent in the traditional market.
“The low willingness to pay a premium could also be influenced by the high-interest rate environment,” Mkhwanazi says.
On average, the estimated average premium that buyers are willing to pay for a solar-installed home – based on those willing to pay, is approximately R79,000 and varies markedly across price buckets. In the affordable market, the average premium is approximately R25,000 compared to R126,000 in the traditional market.
As a proportion of the purchase price, 69 percent of agents estimate the ‘solar premium’ to be within the zero to five percent range, while 22 percent believe it lies within the six to 10 percent range.
“Interestingly, 13 percent of agents in the affordable market estimate that the solar premium can go upwards of 15 percent of the purchase price. In part, this reflects the statistical impact of the relatively lower prices as well as the inherent supply shortages in this segment, let alone properties with installed solar systems.”
This, he states, often leads to bidding wars among buyers. By contrast, none of the interviewed agents in the traditional market had witnessed such a high premium.
Ultimately, the unprecedented levels of load shedding over the past 12 months have facilitated shifts in buyer preferences, and estate agent experiences suggest greater demand and a willingness to pay a higher price for properties pre-installed with solar solutions. However, this is only limited to the affordable market, Mkhwanazi says.