Rate cut in July could bolster buyer confidence
MAIN IMAGE: Siphamandla Mkhwanazi, FNB economist, Glenda Luitingh, Jawitz branch manager and Chris Cilliers, co-owner and principal with Lew Geffen Sotheby’s International Realty.
The elections are over but activity in the property market has remained slow which isn’t surprising with consumers battling rising costs in an almost stagnant economy – FNB economist Siphamandla finds the silver lining amid the doom and gloom.
Many South Africans are just doing all they can to keep the wolf at bay – as is illustrated in the latest FNB property report by the increase in the number of homeowners who are selling due to financial pressure – 19% in the 2nd quarter up from 16% in the 1st quarter of this year.
“This is consistent with our view that household finances are under pressure,” says FNB economist, Siphamandla Mkhwanazi.
Downscaling due to life change is still the dominant reason for selling property in SA (23% of sales). This is not necessarily due to the tough economic times. Glenda Luitingh, branch manager of Jawitz Properties Cape Town CBD & Atlantic Seaboard, says they see many sellers who are well-heeled homeowners choosing to downsize to smaller properties that are easier to manage.
Emigration-driven sales remain the third most common reason for selling although there has been a slight drop in numbers from 14.2% in Q1 to 13.4% in Q2.
Mkhwanazi says they’ve also seen that most (60%) of those that sell due to financial pressure choose to rent as opposed to buying a cheaper property. “However, these trends appear not to have benefited the rental market yet, as flat vacancies have continued rising and rental inflation is still muted,” he adds.
Last year saw the average monthly rental growth rate plummet from 6.4% in 2017 to 3.9% at the end of 2018. The Western Cape had one of its’ lowest growth rates, 3.9% in Q4, since 2012 (yet it still achieved the highest rental price nationally). Chris Cilliers, CEO and principal for Lew Geffen Sotheby’s International Realty Winelands Franchises, says there are “several factors that contributed to the steady decline in the rental market, including slowing semigration and the reluctance of landlords to adjust their price expectations, especially in the higher price bands which continue to be subdued by the growing stock surplus”.
Other factors include risky tenants and a growing risk of delinquency which ties in closely with the financial pressure consumers have in the current weak economic climate. “Net income levels increased by only 1.56% between Q4 2017 and Q4 2018, whilst food, petrol and rental prices increased by considerably more,” Cilliers explains.
Halfway into 2019 the economic outlook hasn’t improved much and property market remains very much a buyers’ market. Mkhwanazi says the FNB Market Strength Index, based on the Valuers’ database, continues to gauge the market as moderately oversupplied, particularly in the middle-to upper-income areas – even sectional title properties are in oversupply. The only section where demand appears better balanced with supply is at the lower end of the market. This is reflected by the year on year average house price growth of 16.3% in the low-income band (average purchase price R395 900) compared to the higher end, upper income (average purchase price R1.3 million) and luxury value (average purchase price R2.3 million) bands that registered 3% and 0.8% y/y respectively in Q1 of 2019.
But all is not doom and gloom … Mkhwanazi says there has already been a slight shortening of the average time that a house remains on the market – 14 weeks and 1 day from 15 weeks in 2018.
Looking ahead, Mkhwanazi says they expect some activity to recover in the second half of the year due to the combination of lower interest rates and hoped for improvement in buyer sentiment.
He says they expect an interest cut will be announced at the next meeting of the Monetary Policy Committee (MPC) in July. This should support the demand for mortgages and thus purchasing activity. All this will depend largely on what happens in the broader economy while keeping in mind that the purchasing power of consumers remains constrained by rising pressures on household finances.