MAIN IMAGE: Adrian, Goslett, regional director and CEO of RE/MAX of Southern Africa, Waldo Marcus, industry principal at TPN Credit Bureau
Staff Writer
While the repo rate is stable, for now, it is unlikely to decrease until 2024, the local economy remains under pressure, especially from continued loadshedding, and Lightstone Property’s analysis of the national year-on-year house price inflation is at 3.88%, which is again a slight increase on the previous month. “Annual property inflation remained steady in the Free State and, KwaZulu-Natal, increased in Limpopo, Mpumalanga, North West and the Western Cape, and decreased in the Eastern Cape, Gauteng and the Northern Cape”.
What does this mean for the property market?
Adrian, Goslett, Regional Director and CEO of RE/MAX of Southern Africa says that high interest rates mean consumer affordability is impacted. “Fewer people who can afford bonds will lead to fewer transactions. If this happens for a sustained period, sellers will need to adjust prices downwards to get their homes sold,” he notes.
This in turn will have an impact on average house price appreciation, which Goslett predicts is bound to stay stagnant for some time. However, he notes that this is area dependent. “Semigration to the Western Cape is a real thing. Despite the fact that RE/MAX SA has more agents operating in Gauteng, for the first time in a very long time, our total YTD Registered Sales Value in the Western Cape has exceeded Gauteng, and this was driven by higher average selling prices in that region (R2.6 versus R1.5m),” Goslett explains.
According to the latest Lightstone Property Report, Cape Town leads stock count and sales in upper price bands, Joburg and Ekurhuleni in the lower band.
Sales activity of three selected residential property price bands in South Africa’s six major metros in 2021 and 2022 point to where property prices are holding up well, and what type of properties are in demand.
The price bands – around R600k, around R2m, and around R5m – accounted for 433 000 total stock units across six metros. The total sales of these properties over two years amounted to 38 000 units, just under 9% of the total stock. The percentage of sales to stock rises as the properties become more expensive, suggesting that higher-income earners have been less affected by the economic headwinds than lower-income earners.
It’s a reasonably good year for rentals
With access to capital becoming more restrictive, Goslett also predicts that people will become more likely to extend rental agreements rather than enter the housing market and might even turn to renting as an alternative to homeownership. “Higher demand for rentals will push rental prices up or at the minimum, keep rental prices high,” he predicts.
This prediction seems to be on track, with TPN’s Residential Monitor Report revealing that vacancies were at 6.19% in the first quarter of 2023. TPN’s Market Strength Index, which measures the perceived demand and availability of supply within the residential rental market, remains strong at 9.14 points above equilibrium, a figure last seen in 2017.
Waldo Marcus, Industry Principal at TPN Credit Bureau says the resilience has been driven by high interest rates which has dissuaded potential buyers. The expectation of further interest rate hikes will serve to retain a healthy demand for residential property.
Letting agents, keep an eye on rental payments
However, although rental growth continues to improve, Marcus says property investors need to keep a close eye on the financial health of consumers and their ability to keep paying their rentals.
However, TPN’s data reveals that tenants in good standing have declined slightly for three consecutive quarters as economic challenges continue to filter into households. This mirrors the result of the National Credit Regulator’s age analysis which indicates that almost all consumer credit types in good standing deteriorated slightly in the same time period. TPN’s Squat Index, defined as the number of tenants who on a monthly basis fall into a category of non-payment, has also seen an increase in the last two quarters.
“A pause in the interest rate hiking cycle by the South African Reserve Bank (SARB) in July 2023 for the first time since November 2021 will have provided some relief to a severely stretched consumer base,” says Marcus. “We expect residential rentals to continue their gradual climb but to slow towards the end of 2023 as the balance between rental growth and vacancies becomes a finer balancing act.”
Which rental bands are performing the best?
When it comes to rental payment performance by the rental band, tenants paying R3 000 or less a month – the lowest rental band – continue to struggle to pay their rental with a continued deterioration of tenants in good standing. Tenants paying between R7 000 and R12 000 have been the best-performing category of tenants since 2014 with the highest proportion of tenants in good standing of all rental bands, followed by tenants paying between R12 000 and R25 000 per month. The luxury market – defined as rental properties costing more than R25 000 per month – has the highest vacancy rate.
What’s the way forward for estate agents?
Goslett warns real estate professionals that there will be fewer homes sold this year. “That is a fact. Make sure you’re with a company that offers a compensation plan that allows you to earn more per deal than you were before and importantly, a company that provides the brand awareness, technology, systems, and tools to help you achieve that,” he concludes.
