Tuesday, September 25

Cloud over SA property market

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A recession and other economic pressures could make buyers even more cautious than they are already

It looks to be a tough road ahead for the country’s property market, especially since South Africa has officially slipped into a technical recession. 

On top of stagnant economic growth, increasing job losses and growing financial pressure for consumers, this economic state will now see buyers become even more cautious than they already are, says Herschel Jawitz, chief executive of Jawitz Properties.

“The expectation is that the lower end of the market will be hardest hit.”

Even if the recession had been avoided, Jawitz says it was unlikely the residential property market would have seen “any meaningful improvement” this year. 

Echoing this, Tyson Properties managing director Chris Tyson says he does not foresee “much of a shift” in the market in the next 18 months.

“We are currently working in a very tricky market, and a recession will further impact the market. It will put greater pressure on the incomes of South Africans and many will be forced to sell their homes and downsize.”

Economic growth is likely to “continue to be sluggish for the balance of 2018”, and Pam Golding Property Group’s Andrew Golding says although forecasts are for slightly stronger growth in 2019, “this will take time to play itself out into the property market”.

“This suggests the local property market will continue to be tepid with occasional areas of out-performance and excellence.”

The number of national bond registrations has increased quarter on quarter for this year, but Adrian Goslett, chief executive of Re/Max of Southern Africa, says the overall growth in property prices has been significantly lower than previous years. 

“I predict it will continue to be a tough year in real estate with marginal growth in property prices,” he says.

During recessions, property prices generally stagnate and may even fall, which can be an attractive prospect for people in a position to buy, says Just Property chief executive Paul Stevens. 

“Interest rates may also rise if the government takes measures to curb inflation.”

A reduction in property values and a slowdown in sales activity will also be seen during a recession, says Harry Nicolaides, chief executive of Century 21.

“The low demand will be as a result of unaffordability on the side of buyers due to a higher cost of living.

“Hardest hit will be the low-income groups, as usual,” he says.

The country’s economic challenges this year are “much deeper than anticipated”, and although the market is “challenging”, says Samuel Seeff, chairman of the Seeff Property Group, there are still “opportunities aplenty”.

“Deeds office data shows thousands of sales transactions are concluded every month.”

Furthermore, economic growth has been “so low for so long now” that even though the country has slipped into a technical recession, Richard Gray, chief executive of Harcourts Africa, says it may not be such a major shift. 

However, consumers do react to strong economic terms, so buyers may be skittish while at the same time homeowners could possibly hold off on selling.

The lower-income to mid-income brackets will “unfortunately be the most negatively affected” by a recession, says Mike Greeff, chief executive of Greeff Properties. 

Should economic conditions over the coming quarters not slip further, he believes the property market “should fare well” for the rest of the year.

Reality check: Pressure likely

Positive sentiments at the start of the year around the future of the country have not translated into material consumer spending, says Standard Bank economist Siphamandla Mkhwanazi. Standard Bank’s House Price Index has averaged just 4.7% this year, mirroring the 2017 average, despite consumers being much more optimistic about the economy than they have been in decades, says Mkhwanazi.

“This means the positive sentiment has not translated into material consumer spending, with sub-indices showing restraint in big-ticket spending including houses, despite attractive pricing in many areas,” he says.

While the bank’s base case expectations had been that the property market would perform marginally better than last year, this will not be the case now that the country is in a technical recession.

“In a recession environment, we would expect pressure on property markets to intensify and even lead to nominal price deflation in some areas as purchasing activity/demand dries up.”

Price reduced: Wrong assumptions

Uncertainty in the country’s economy and property market has seen discrepancies in the pricing of properties, and a number of properties carrying “priced reduced” tags.

But while this may cause some trepidation for prospective sellers and excitement for buyers hunting for a good deal, “price reduced” does not always mean what people think, says Schalk van der Merwe, franchisee for the Rawson Properties Helderberg Group.

“There is a lot of negativity surrounding price adjustments on property listings. People assume that if a property price is reduced, it’s because the seller is getting desperate.” 

Although there are times where this may be true, Van Der Merwe says it is not always the case. From the seller’s perspective, he acknowledges that it’s always preferable to list at the correct price from day one, but says this can be difficult when balancing expectations with fluctuating market conditions.

Price recommendations by agents with access to comprehensive current and historical data, and knowledge of specific neighbourhoods do not always coincide with seller expectations, and negotiations can lead to listings being initially overpriced.

Therefore, buyers should never assume that a “price reduced” property is automatically a bargain. Pricing a property correctly so it is not on the market for too long and fetches the maximum price can be a challenge for sellers though, says Herschel Jawitz, chief executive of Jawitz Properties.

In the current market, the competition is not between buyers but rather between sellers for a limited pool of value-driven buyers, he says. The starting point for most properties that come onto the market is a balance between historical data of similar properties that have sold and the aspirations of a willing seller. In a short period of time, the market made up of well-researched buyers will respond positively or not at all to the asking price, he says. 

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