Despite the rising interest rates and rolling Eskom blackouts in a post-Covid 19 environment, the real estate industry has seen a busy 2022. What is next? The Property Professional asks market leaders for their 2023 predictions.
Interest rates
The current rising interest rate cycle is likely to continue into 2023, though many suspect it might be reaching its peak. Dr Andrew Golding, Chief Executive of the Pam Golding Property group shares that “Bearing in mind that while the interest rate has recently been at historic 50-year lows and is now just above pre-Covid levels, it is hoped that we are reaching the end of the increases, as the interest rate environment is understandably the single biggest influencing factor in the market”.
Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa believes that “Housing market performance is intrinsically linked to the broader economic circumstances. While it is impossible to say with any certainty what lies ahead, all signifiers currently point to 2023 being a year of slowed growth”. Samuel Seeff, Chairman of the Seeff Property Group shares that “The lower price bands and first-time buyers have been most affected by the rate hikes. The market above R3 million is less sensitive to rate hikes, but more to economic conditions and business confidence”.
Rhys Dyer, CEO of ooba Group concurs, “While the past few years saw a sharp uptick in first-time homebuyers due to the lower interest rates, 2022 showcased just how ‘rates sensitive’ this demographic truly is with the number of first-time buyers steadily declining and those that are buying, buying properties that fit their affordability constraints,” says Dyer.
Golding predicts that unless inflation begins to ease off following the latest 0.75% bump, South Africans are likely to experience further interest rate hikes in 2023, though probably not as severe as previous hikes but somewhere between 0.25% or maybe 0.5%. “I also predict that banks will start to fight harder to offer better pricing to clients on interest rates,” he anticipates.
Where will people be buying?
The general consensus seems to be that the Western Cape will continue to out-perform the rest of the country. ooba’s latest statistics indicate that while Western Cape remains a strong contender in the property realm, and, while prices have been slowing the most rapidly, average purchase price remains the highest among the major regions. “The appeal of the Western Cape clearly does not lie in the relative affordability of homes but rather in the lifestyle offering, the relative security and the competency of municipal management,” says Dyer.
In contrast, the likes of Gauteng South & East Rand have seen an increase in the rise of (repeat?) property prices, despite registering the lowest average purchase prices in South Africa (at R1.18 million). “Interestingly, Gauteng South & East Rand is the only major region in which applications from first-time buyers remains consistently above 50%. We anticipate that the demand for areas such as these will grow in 2023 as buyers plan carefully and realise their dream of homeownership by purchasing in areas where they can manage affordability.”
Semigration continues
According to Golding one would expect the semigration to peripheral suburbs and holiday/retirement villages and towns to abate somewhat as people realise they may be required to go back to the office at least part of the week, making a lengthy commute less appealing or viable. However, the semigration to well-run municipalities (such as the Western Cape) is likely to continue. There is probably, however, a limit as to how long this trend can run and that is the extent to which people can afford to relocate. That said, popular areas for semigrators for lifestyle reasons include Cape Town, the Boland & Overberg, Knysna, Plettenberg Bay, St Francis Bay, Kenton on Sea, uMhlanga, Ballito and Zimbali. Gauteng, primarily Johannesburg, always attracts a high number of semigrators relocating for career and financial opportunities.
The top end of the Western Cape housing market has clearly benefitted from the two waves of semigration – particularly the second wave triggered by the pandemic. In Q2 2022, the Western Cape accounted for almost half of all >R3m sales in South Africa, followed by Gauteng at almost a third.
Seeff points out that inland areas do not benefit from the added demand from semigration and international buyers and are likely to see lower turnover and pressure on asking prices. Those looking to semigrate from up north may potentially need to sell at a discount.
What about rentals?
When it comes to the debate of buy or rent, Seeff believes that there is good news for landlords, “The rental market has largely recovered from the pandemic with drastically improved payment trends and positive growth in rental rates. Semigration and a return of tourism have also boosted rental demand with some areas now reporting stock shortages, providing buy-to-let investment opportunities”.
Golding concurs stating that “There has been a marked increase in applications for investment or buy-to-rent properties in recent months, according to ooba. This suggests that buyers see the residential property market as an attractive investment proposition and could also include those who ultimately intend to semigrate elsewhere in the country, opting to gain a foothold in their desired town or metro housing market with an investment or rental property until such time as they are ready to relocate”.
Dyer concludes that Buy-to-let investments (properties purchased as an investment) will continue to gain ground in 2023. “Demand for the financing of buy-to-let properties has grown by around 30% year-on-year and this trend is particularly notable in the Western Cape where the rate of applications for investment properties reached a high of 24.2% in October ’22. Investors are looking to ‘cash in’ on high demand in the rental market due to higher interest rates, and this trend is set to continue well into 2023”.
Goslett does add a caveat in terms of rental prices “In my opinion, it is likely that buyer demand will drop as a result of the tougher economic conditions we are likely to experience in 2023. The number of property sales (units) is likely to drop by around 10%. Market activity might shift back towards the rental market, which could be beneficial for landlords. However, owing to the challenging economic climate, rental prices (and house prices, for that matter) are unlikely to show any substantial growth in the year ahead. House prices are likely to grow only by roughly 4% nationally.”
A shift towards sectional title
While SA housing stock remains predominantly freehold, Golding says that there is a clear shift towards sectional title. This is evident in the composition of new housing stock, with sectional title increasing from 21.5% of all new homes sold in 2018 to 30.5% of new units sold in 2021 as tracked by Lightstone.
Golding believes that there are a number of reasons for the popularity of sectional title homes:
- Affordability – particularly since there are a large number of young adults in SA looking to gain a foothold on the property ladder
- Cost and convenience – maintaining a sectional title property is more affordable and convenient as the costs are shared with other homeowners, and services such as painting, and gardening are undertaken on behalf of all homeowners
- Amenities – while estates offer homeowners various amenities, new developments increasingly offer access to roof-gardens, pools and gyms to a larger number of homeowners and renters as part of the live-work-play trend
- Security – security is an increasingly important issue for homeowners and is generally better in a sectional title home
- Location – is varied but new sectional title developments tend to be focused in business nodes such as Sandton and Cape Town CBD (where land is scarce and expensive) and in coastal areas such as the Atlantic Seaboard and Western Seaboard (again, land is limited and expensive), but also increasingly in estates as the latter tries to make estate living available to a broader range of homeowners. Furthermore, the student market is increasingly important, and properties catering for this market also tend to be sectional title for the reasons above.
Seeff believes that 2023 will generally remain a good market for buyers although they will need to factor in higher repayments and potentially higher deposit requirements on home loans. The bank lending landscape remains a positive for the market and there are still ample reasons to invest in your own home.
With fewer buyers in the market and the likelihood that they will look for more negotiability, realistic pricing will be a prerequisite to conclude a sale. As there are no foreseeable prospects of higher prices going into next year, serious sellers should not waste the opportunity of a serious offer.
