Slow economy set to add downward pressure on SA house prices

Amanzimtoti Property • Crisna van der Bank • RE/MAX Toti

As we draw a close to the third quarter of 2021, the effects of the third wave of COVID-19 infections combined with the looting and protest actions following Zuma’s arrest are sure to be felt across most sectors of the South African economy. The question is whether this will have an impact on the local housing market.

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, says that he expects activity within the local housing market to level out in response to the challenging economic circumstances that lie before us.

Downward pressure on asking prices

“When unemployment increases, spending power declines and fewer buyers can afford to purchase property. This translates into a buyers’ market where the supply of properties outweighs the demand from buyers. Those whose salaries are affected might become unable to afford the costs of their home loan, which will mean that more properties will enter the market, with some falling claim to bank repossession and distressed property sales. In time, this can put downward pressure on asking prices,” says Goslett.

The hope is that vaccination rates will increase soon, as this should prevent any further restrictions on economic activity and allow for a period of recovery. “Provided that the economy is allowed to operate without any further restrictions, it is possible for the economy to begin its gradual recovery and for the downside risks to the local housing market to be contained,” says Goslett. 

'Can't remain this active forever'

While unable to predict if and when the property market will be affected by the current economic conditions, Goslett remains optimistic about real estate as an investment vehicle.

“Despite our current economic outlook, our network recorded an increase of 54% in reported sales. And, while I know that the property market is unlikely to remain this active forever, this does paint a promising picture that the demand for property exists even within a struggling economy.”

Goslett advises homeowners to keep an ear to the ground over the next few months to remain aware of any changes in the outlook for both the economy as well as the local property market.

Beterbond data shows that the largest percentage growth in the number of formal grants for the 12 months ending August 2021, at 45.49%, has been for homes with a purchase price of more than R3 million.

There’s been a further 38.7% increase in the number of formal grants for homes of between R2.5 million and R3 million,” saysCarl Coetzee, CEO of BetterBond .

After more than a year of record-low interest rates, buyers at the upper end of the market are seizing the opportunity to upscale their homes and applying for larger bonds.

“Overall, BetterBond’s approved bond size is up by 15%, while the approved bond size for first-home buyers is up by just over 13%.

'Unique micro trends'

“Each suburb will have its own unique micro-trends that might differ from the trends that emerge within the broader housing market.

“Chatting to a local real estate professional can shed some light on these unique trends and keep homeowners better informed on the state of their given market. This will help them make better decisions around how best to manage their real estate investments,” adds Goslett. 

For instance, the Cape lifestyle with its natural scenic attractions, wide-open spaces and good schooling, retains an emphatic stamp of approval from ‘semigrators’ seeking a more appealing and healthy way of life, which this region offers in spades.

While the market recovery seen in 2020 has tapered somewhat, Dr Andrew Golding, chief executive of the Pam Golding Property group says the ongoing record-low interest rate will continue to bolster the property market.

“From a housing perspective, the prevailing low interest rates have undoubtedly bolstered market confidence, coupled with favourable lending conditions seeing both average (trailing effective) and first-time buyer approval rates rising further in August (2021), increasing to 82.6% and 81.2% respectively, according to ooba.

“Moreover, after increasing in Q4 2020 and Q1 2021, deposits as a percentage of purchase price are again declining, with average and first-time home buyer deposit rates converging at around 7% in August, while the overall approval rate for 100% home loans rose marginally in the same month to 82.8%.

“According to the Pam Golding Residential Property Index, while national house price inflation continues to lose momentum as economic growth slows in Q3 2021, easing from a peak of 5.2% in May to 5% in August, the sub-R1 million price band continues to enjoy uninterrupted growth, averaging at 5.8% for the year to date (to August 2021).”

 “Bucking the national trend, the Western Cape is the only major regional market in which house price inflation continues to accelerate, with house price inflation averaging 5.8% during the year to date, compared to 4.7% in both Gauteng and KwaZulu-Natal.

“In addition, according to Lightstone, the coastal price premium versus non-coastal homes continues to widen, reaching 2.9% in May 2021 (latest data) and averaging at 2.2% for the year to date, compared to just 0.2% in 2020.

“According to ooba, the average price of homes sold rebounded in August, rising to R1.4 million overall and R1.13 million for first-time buyers – the latter approaching January 2021’s record high.

“Notably, at R113 billion, the total value of residential property transfers in South Africa during the first half (H1) of 2021 was 35.4% above H1 2019, while units were 12.3% higher at approximately 114 000 (Lightstone data). This robust improvement from pre-Covid levels of activity underlines the ongoing resilience of the country’s housing market, underpinned by consistent demand for correctly priced homes across all price bands, particularly the sub-R5 million category – but also including luxury residences,” says Dr Golding. 

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