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Absa highlights ‘cautious optimism’ as consumer sentiment improves

Absa highlights ‘cautious optimism’ as consumer sentiment improves

Senior writer

In the 2024 Q1 review, the Absa Homeowner Sentiment Index (HSI) reveals a 4% increase in property market confidence compared to Q4 2023. “This is a positive sign that although the general environment is still strained, the sentiment around property in the future is starting to look more promising,” says the report.

The HSI, which surveys more than 1,000 customers, is an indicator of the overall state of consumer confidence in the country’s property market, providing valuable insight to market players regarding the overall confidence level of consumers. It also measures various aspects of consumers’ confidence levels, referred to as “subindices”, including consumers’ sentiment regarding the current timing for buying, selling, investing, and buying rather than renting and property renovation.

The highest quarter-on-quarter increases were recorded in sentiment around buying (8%), investing (6%) and buying versus () renting (6%). Seller sentiment, albeit more muted, increased by 1% compared to the previous quarter. This same upward movement is also observed when comparing Q1 2024 to Q1 2023.

Notable highlights of Q1, 2024 are:

• Overall, positive responses increased to 82% in Q1 2024, which was 4% higher than in Q4 2023, but significantly higher (9%) than in Q1 2023.

• The sell sentiment increased slightly, by 1% to 49%, compared to Q4 2023, and was 6% higher than in Q1 2023. Verbatim comments by respondents indicate that many sellers sell due to relocating, mainly because of finding better employment opportunities elsewhere. Others sell driven by lifestyle needs, where their current homes become too small, and they need to upgrade. Interestingly, many sellers previously bought smaller homes intending to upgrade and sell these as an additional income.

• The renovate sentiment increased by 4% to 79% compared to Q4 2023 and 7% compared

to Q1 2023. Most respondents said they mainly renovate to add value to their properties and to make living spaces more enjoyable. For others, renovations are driven by the need for repairs and maintenance. The high cost of materials remains a key detractor.

•  The buy sentiment improved by 8% to 72% compared to Q4 2023 and 11% compared to Q1 2023. Buy sentiment has been consistently downwards since Q4 2021 (the start of the rate cycle) but turned significantly in Q1 2024. Respondents feel slightly more confident about buying based on their overall financial position and affordability. The main drivers for buying sentiment include growing families and the need for more space.

•  The buy vs rent sentiment (potential future buyers who are currently renting) increased by 6% to 73% in Q1 2024 compared to Q4 2023 and by 12% compared to Q1 2023. Many respondents said that they have saved enough to afford a deposit on a home, while others want to buy due to relocation and finding new opportunities. For those who still prefer renting, this option’s flexibility remains attractive.

• The investment sentiment increased by 6% to 82% in Q1 2024 compared to Q4 2023. This is the highest result recorded since Q1 2021 and indicates that property investors feel it is an opportune time to invest for future value and returns.

Outlook

HSI researchers suggest a higher level of consumer optimism across the board relating to the outlook for the property market 2024. “It seems that some positive signals during the period under review are starting to emerge, and the consumers are starting to gear up for better times,” it claims.

Further, some macroeconomic forces may continue to raise sentiment as the year progresses and into 2025, including:

• Interest rate cuts: Inflation is expected to continue downward, closer to levels where the South African Reserve Bank (SARB) would consider interest rate cuts to alleviate some pressure on those with high debt levels. However, this is most likely to only happen towards the end of the year and to be influenced by various risks, especially food inflation related to drought.

• Reduced load shedding: Since the end of December 2023, the intense impact of load shedding has subsided, and the power supply has stabilised to some extent, taking pressure off households and contributing to an uplift in consumer sentiment.

Application volumes for home loan finance and property registrations in the National Deeds Office remain subdued. However, green shoots are emerging in some pockets of the market, such as the first-time buyer and investor segments.

Fundamentally, the overall sentiment around homeownership in South Africa remains healthy, according to the HSI. “Many view it as a sound long-term investment, despite current economic challenges weighing on short-term buying decisions. Many consumers have also indicated their preference to prioritise saving before purchasing property, to secure their financial positions, opting to delay the decision in the short term.”

The conclusion is that the outlook for consumers remains strained in the short term. Although inflation is expected to ease further during 2024, risks remain. Interest rate levels are expected to improve for indebted consumers by the end of 2024; however, this is expected to extend the time it will take for the property market to fully recover.

Industry leaders comment:

Herschel Jawitz, CEO of Jawitz Properties:

“We are seeing increased buyer activity and demand from buyers in 2024 as compared to 2023. The increase in activity is across the board when it comes to price with even the upper end of the market showing better buyer interest. Even though the key economic indicators like growth, job creation, inflation and interest rate haven’t really improved this year, there is an expectation that rates will come down and a sense from buyers that the residential market has bottomed out and now is a really good time to buy.

“It’s not often that you get the opportunity to buy a property at prices last seen five years ago but that is what is happening in certain instances. That would reflect the positive sentiment numbers from buyers in the ABSA sentiment report. Despite high interest rates, the subdued property prices are also creating opportunities for investors who are seeing their yields go up as rental price growth outpaces property price growth and first-time buyers.

“For sellers in the current market, the ABSA index did improve slightly but still sits below 49%. The better news for sellers across almost all parts of the country is that there is better buyer activity, but it will take some time before this increased activity translates into better price growth. That doesn’t mean that it is necessarily a bad time to sell. If you sell in a soft market, make sure you buy in the same market, especially if you are buying up. What you lose on the swings, you  can make up on the roundabouts when you buy.”

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa:

Goslett remains cautiously optimistic about how the South African property market will perform in the year ahead. However, he notes that persistent challenges such as high unemployment rates, high interest rates, the risk of load shedding, and political uncertainties could temper growth.

“Investors and buyers are likely to remain vigilant, seeking value in well-located and resilient property sectors while navigating potential economic fluctuations. The next two weeks are crucial for SA’s democracy and economic future. Coalition partners picked in the next few days will determine foreign and local investment sentiment and may well determine the trajectory of the economy over the next few years,” Goslett comments.

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