Are LSMs relevant in buying and selling property?
Posted on Fri, Dec 03, 2010
The South African Advertising & Research Foundation (SAARF) Living Standards Measure (LSM) is the most widely used research and market segmentation tool in this country, and has been so for the past decade. It divides the population into a total of 14 LSM groups and sub-groups. These are numbered from 1-10 with LSMs 7-10 further segmented into high and low categories.
LSM is a unique means of segmenting the South African market by an analysis of 29 variables. It cuts across race and other outmoded techniques and groups people according to their living standard using criteria such as degree of urbanisation and ownership of cars and major appliances. Broadly, the LSMs range from LSM 1 (typically, rural folks with no access to running water) to LSM 10 (typically, urbanites with a domestic servant, house and car).
Understanding how this segmentation works provides meaningful insights into the way South Africa’s economy operates. Essentially, the LSM is a wealth measure based on standard of living rather than income - in fact, income does not appear anywhere within the LSMs at all. Following the “birds of a feather, flock together” adage, most members of society associate with persons of similar socio-economic backgrounds. This isolation and segregation leads to a general lack of understanding of how the “other half” lives. For business however, such ignorance can be a substantial risk. A thorough knowledge of your markets and clients, their income, living standards and aspirations form a basis for actionable insights. It allows business owners to align products and services to meet targets set for the bottom line.
For the real-estate sector, LSM data is a helpful tool to assess a suburb’s demographics, determine factors influencing house prices and in determining where a prospective buyer may want to live.
For example LSM 1-4 households (45,9% of all households) are responsible for 11,5% of South Africa’s total household cash expenditure, LSM 5-7 households (34,3% of all households) for 32,7% and LSM 8-10 households (18,9% of all households) for 55,8%. Go one layer deeper and the picture becomes enlightening. 24,8% of the total national expenditure was spent by LSMs 1- 4 on food, LSMs 5-7 spent 38,4% and LSMs 8- 10 spent 37,1%. On luxury items, however such as holidays, LSMs 1- 4 only spent 1,4%, compared with 10,8% in LSMs 5-7 households and a massive 87,8% in LSM groups, 8-10.
Demographics plays an important role in other key LSM points:
- Just under two thirds of SA’s adult population are in LSM 1-5. Just over 10% are LSMs 9-10.
- Over half of LSMs 1-5 live in KZN, Eastern Cape or Limpopo.
- LSMs 9-10 are still predominantly white (74%), and LSMs 1-5 are almost exclusively black (95%).
- LSMs 9-10 are mainly in professional and technical, clerical and sales, administrative and managerial professions. For LSM 1-5, are mostly in service, production and mining, clerical and sales.
- One half of LSM 1-5 speak Zulu or Xhosa at home. For LSMs 6-8, Afrikaans is most prevalent (28%), while within LSMs 9-10, 48% speak English, and 43% speak Afrikaans.
For property professionals the South African Property Transfer Guide (SAPTG) has now categorised over 10,000 suburbs into predominant LSM ratings. This, along with enhanced demographic data regarding age segments, income and crime levels in their Demographic Report, allows for buyers to be directed to areas where they will most likely feel at home.
Estate agents can become true ‘area specialists’ by utilizing this innovative module in their property assessments.
Calculate your own LSM at: http://www.eighty20.co.za/databases/show_db.cgi?db=fulllsmcalculator