2016: What lies ahead?
The industry sees nuances in economists’ gloomy residential market forecasts. They’ve got their eye on the Property Practitioners’ Bill and they’re watching the trends that will shape South Africa’s real estate landscape this year.
1. THE MARKET
They say Wall Street predicted nine of the last three recessions. Whoever came up with that quote may well have had South African property economists in mind. Notable names in the property economics game have been warning for several years that the residential market was due for a correction, at least in real terms.
FNB’s Property Barometer would suggest that this correction has already begun. Although South African house prices surged 280.9% in nominal terms between January 2001 and July 2015, FNB’s data shows that the average real house price (that is, nominal price growth minus inflation) is almost 19% lower than the high achieved in December 2007.
This has prompted property economist Erwin Rode to suggest that investors would be better off renting than buying, unless they were able to execute a 100% cash purchase. Considering that roughly 80% of buyers still rely on mortgage finance to buy their homes, cash purchases aren’t really an option for most.
While FNB property economist John Loos has never been a fan of the rent-rather-than-buy argument – he says it doesn’t consider moving costs and the hassle factor – even he concedes that the residential property market is due for a downward real price correction over the next five to 10 years. However estate agents aren’t entirely convinced.
“They’ve been saying this ever since I can remember,” says Berry Everitt, group CEO of Chas Everitt International Property Group. “You can’t base your decision on the average for the market as a whole. Each suburb has its own drivers – there are those that will do very well and others not.”
Everitt says properties near active metropolitan areas such as Sandton’s and Cape Town’s CBDs will continue to deliver positive growth in 2016. Lifestyle estates such as those in the Cape Winelands or along South Africa’s spectacular coastline will also continue to attract buyers, many of them foreign.
“Everyone has a different take on exactly what the SA property market will do in 2016 in response to two interest rate increases in the past 12 months and declining economic growth,” he says. “We were due for a somewhat slower year. But I don’t believe that the businesses that make up our group will suffer any serious negative effects over the next 12 months. After all, when you’re going at 200km an hour and you slow down to 180km hour, you’re still going at a very good pace.”
THE LIFESTYLE FACTOR
Pam Golding’s statistics for the past 12 months show that 37% of all transfers in the R2m price range were in estates, while for homes priced around the R4.5m mark the figure is almost 60%.
on consumer demands
“Superior business support structures and marketing platforms are increasingly important in light of the fact that property consumers are demanding ever-higher levels of service, expertise and exposure. It takes significant financial, marketing and training resources to provide these.”
Says CEO Andrew Golding: “With municipal tariffs such as rates, electricity and water receiving increasing attention, we anticipate the trend towards the containment of such costs and conservation of our precious natural resources will further stimulate the growing demand for convenient sectional title living and use of energy-saving features. Although generally smaller in size, but not necessarily cheaper, sectional title offers low overheads and improved security.”
With inflation within the target range and a sluggish economy struggling to regain impetus while the country experiences the worst drought in decades, the Monetary Policy Committee’s decision in November 2015 to further increase the repo rate by another 25bps was ill-timed, says Golding. A stable rate would have helped boost business and consumer confidence at a time when it is needed most.
THE DRAG OF ECONOMIC HEADWINDS
“A stable repo rate would have sent a positive signal to South Africa’s housing market, which despite ongoing economic headwinds, continues to experience sustained demand, which in many key nodes and metros exceeds the supply, resulting in ongoing stock shortages.
“Our outlook into 2016 is that the current supply-and-demand environment will continue to prevail, notwithstanding the weakness in the economy,” says Golding.
Samuel Seeff, chairman of Seeff Properties, remains cautiously optimistic that residential property growth will at least match inflation and may even marginally outstrip inflation in the foreseeable future. He concedes that economic headwinds could be a drag on the market.
“The economy will remain under pressure for at least the next two to three years,” he says. Nonetheless, Seeff believes that still-tight stock levels should keep the market nicely balanced this year, in turn keeping price growth at least on par and perhaps slightly above inflation.
“The volume of distressed properties that characterised the market and certainly impacted sales volumes and price growth for much of the 2008-2014 period has now been cleared, and given the conservative lending by the banks, we do not expect this to become a major issue into next year.”
“The one big thing we are expecting to see is collaboration. Real estate agents, print publications and digital platforms have finally realised the synergies they can bring to each other, synergies that result in a stronger, healthier real estate market. For many years these different property players have viewed each other with suspicion and competed for consumer engagement. However those consumers are looking for a complete solution. Digital, print and agency each offer unique value to the property seller/buyer and we expect to see significant cooperation and collaboration opportunities in the areas of property marketing, mandate acquisition, lead handling and data services next year.”
on digital disruption
“I firmly believe that an app can’t sell a property – and the role of an estate agent in the industry will remain of great importance. Technology has in fact – according to trends in the USA – validated what the agent is saying: that going the DIY route to sell your home is not easy and not recommended. This can be seen by a staggering 20% drop in private sellers in the USA this year.”
Seeff’s advice is to buy in blue-chip locations such as Cape Town’s Atlantic Seaboard and Southern Suburbs, as well as Johannesburg suburbs in close proximity to the Sandton CBD, often referred to as the richest square mile in Africa.
“These areas tend to be recession-proof,” he says, adding that the Atlantic Seaboard suburbs of Clifton, Camps Bay, Bantry Bay and Fresnaye even outperform Johannesburg’s elite suburb of Sandhurst by 30%-40%.
Of course, not everyone can afford to buy a home in Clifton or Bantry Bay. But Golding points out that there are good investment opportunities in all segments of the property market.
Herschel Jawitz, chief executive of Jawitz Properties, says that the lower-to-middle price segments – R750,000 to R3m – will remain the sweet spot of the market from an activity point of view, driven by first-time buyers and young professionals.
He goes on to say that while there are still more buyers in the market than sellers, the number of buyers has slowed, and 2016 will introduce a shift from what has been a very good sellers’ market over the last few years to a more balanced market between buyers and sellers. “For the most part buyers have factored in that interest rates will increase in 2016 and as such the impact of these increases may have a marginal effect on buyer demand. If interest rates do increase by 1% or more over the next 12 months, you may see more distressed sellers coming onto the market, especially at the lower end of the market,” says Jawitz.
A PRICE CORRECTION IS DUE
Tony Clarke, managing director of Rawson Property Group, says 2016 will still be about the right-sizing of the property market, since the boom of the early 2000s. “From a price growth standpoint, I tend to agree with the banks and other property commentators who are forecasting that house price growth will remain in single digits in 2016. I expect to see house prices increase by a nominal rate of about 8% (which is 2.3% in real terms).
on investment value
“Property is seen as one of the top stores of wealth. This is why we see high-net-worth individuals putting their money into blue-chip areas such as the Atlantic Seaboard, and paying ever-higher prices – more R20m-plus properties have sold this year compare to last year, and at higher prices, ranging to R111m in Clifton. South Africa’s top 10 suburbs now boast an average sales price of R10m, and the national average house price also breached the R1m price mark this year.”
Clarke quotes Absa’s forecast for headline consumer price inflation – that it is set to average about 5.7% in 2016, and it is imperative that it stays below the 6% mark because there will be further interest-rate increases next year.
“In 2016 we will definitely be continuing in a seller’s market with stock shortages, although influenced by region. I also believe we will see first-time buyers struggling to access mortgages without sizable deposits and find many homeowners choosing to renovate rather than upscale,” says Clarke.
Equally realistic, Myles Wakefield, CEO of Wakefields Real Estate, says that all signs point to a levelling off of the property market. “But it’s certainly not all doom and gloom for 2016. As an industry we can all see that sales volumes are down a little, stock shortages are easing – it stands to reason that the increased cost of living, slight change in the interest rate, and general uncertainty around local and global issues, will make consumers cautious. Looking at the small interest rate hike, we do need to look at the bigger picture – the South African Reserve Bank has committed to containing inflation, and it’s critical to the economy that the bank sticks to its mandate and thereby retains global credibility. Increasing the repo rate is one of the tools to ensure that they don’t waver on that. So although it may make consumers uneasy, in some respects it’s a good sign,” he says.
2. THE INDUSTRY
The proliferation of new legislation and the complexities around the continuing professional development (CPD) programme roll-out have all contributed to a tough year for the industry.
“I’m looking forward to working more closely with the Estate Agency Affairs Board (EAAB) and the Department of Human Settlements in 2016,” says Clarke. “I’ve been greatly encouraged by the hard work done by REBOSA to get various property groups and associations talking to each other. I believe that we are all looking in the right direction when it comes to the South African property industry – I can only see good things ahead.”
Golding is keeping a watch on ongoing industry transformation and on the new Property Practitioners’ Bill that he says will become a factor to consider in 2016. Jawitz says this bill and the Property Charter will have a fundamental impact on the industry, creating both opportunities and significant challenges.
Says Clarke: “The Property Practitioners’ Bill as it stands is draconian and does not speak towards transformation. I believe industry heads should be consulted on this topic and be given the chance to assist with a rewrite.”
Golding hopes the CPD programme will improve both in terms of content and logistics, and that the e-learning component will make a significant difference to agents. So its good news that REBOSA has been invited to participate in the discussions in respect of CPD topics and content for the next three-year cycle. Says REBOSA CEO Jan le Roux:
“We have established a multi stakeholder group where the EAAB and representative estate agency organisations meet. It has resulted in major changes being made to accommodate agents and address deficiencies. It includes e-learning with a 70% pass requirement and skills training, and catch-up programmes are available.”
About 80% of sales are made by 20% of agents, says Wakefield. “Estate agencies are, to a large extent, in the business of attracting estate agents – experienced agents. The compulsory qualifications are helpful in improving the public’s image of agents, but the journey from being an intern to a fully-fledged estate agent is a time-consuming, expensive process for both the agent and the agency – and qualifications don’t guarantee a great salesperson or sales so the competition between brands for successful agents is fierce.
“On the flipside, with qualifications needed, competition fierce, and digital expertise essential, only the best agents succeed – there’s no room for average. And that, in itself, is good for the image of estate agents.”
JAN LE ROUX
on CPD programme
“The establishment of a multi stakeholder group has resulted in major changes being made to accommodate agents and address deficiencies in the programme. E-learning with a 70% pass requirement is in place, skills training will be included and catch-up programmes are available.”
3. RESIDENTIAL PROPERTY TRENDS
The industry agrees that the demand for secure estate living is a trend that’s not going away as buyers will continue to prioritise security in South Africa. These homes are also likely to see better than average price growth. “This trend goes hand in hand with the demand from families for a lifestyle within easy reach of good educational facilities and access to all amenities in a ‘countrified’ environment with sport and leisure activities on hand, but still in proximity to commercial nodes,” says Golding.
Growing urbanisation and densification, and an increasing emphasis on energy saving and sustainability, are two other trends that Golding expects to take off in 2016. Pockets of strength in the residential property market will remain in the metro areas as a steady influx of people seeking economic opportunities means there will be a continued demand for housing, according to Golding. Furthermore, cities are becoming more concentrated thanks to a lack of land within metro areas and growing congestion – a trend that will continue. Coupled with this is an increased emphasis on “work, live, play” which is also impacting on the demand for urban living in vibrant and trendy hubs.
Golding flags the rising costs of water and electricity together with increased environmental awareness of the need to conserve natural resources as triggers for many homeowners installing a host of green features. Increasingly such features will be incorporated as a matter of course in new developments, catering for the growing impetus towards sustainability and self-sufficiency.
on the digital space
“There’s little doubt that the digital environment is impacting more and more on our industry – and like everywhere worldwide, if you’re not up there, you’re nowhere. Marketing spend is increasingly moving to digital, or at least, is mirroring our spend elsewhere. But in South Africa currently, no matter how sophisticated the digital arena, that face-to-face contact still plays a significant role – it’s that interpersonal skill which separates the great agent from the average.”
on downsizing v stock
“Even though more property will come onto the market due to people downsizing, we predict that there will still be a property shortage as those people will be buying again. We predict a surge in developments, especially in high-growth areas such as Umhlanga in KZN, due to growth of the region and the impact of the Commonwealth Games.”
Words:Garth Theunissen and Catherine Davis