Properties are staying on the market for longer, a sure sign there are more properties for sale than buyers.
After months of speculation and hopeful optimism, the country’s property market has begun to show its true state, and the picture is not as pretty as it was initially thought to be.
With half the year already done, it seems that while the tunnel is brighter, there is no light waiting at the end. Rather, property stakeholders should be satisfied that at least the market, and economy, is better this year than it was last.
FNB’s latest property barometer for the April to June period showed properties are staying on the market for longer, a sure sign there are more properties for sale than buyers.
This, says the bank’s property economist, John Loos, is reflective of “Ramaphoria”, or the level of positive sentiment following President Cyril Ramaphosa’s election, tapering off.
“In the first quarter (Q1) of the year (January to March) we saw a significant strengthening in our market indicators, with agents pointing to a positive impact coming from the change in political leadership, most notably the president. In the second quarter (Q2), however, the excitement has worn off, and the household sector is back to dealing with a recessionary economy and rising costs of living.”
Basically, progress made in the first quarter of the year to reduce the average time that homes were on the market before being sold was “quickly reversed”, Loos says.
An average time of 12 weeks on the market more-or-less represents national market equilibrium.
“Until the final quarter of 2017, the market had drifted away from that equilibrium level, reaching an average time on the market of 17 weeks and 2 days. The Q1 improvement went hand in hand with a jump in market activity, according to agents, and it appeared to be a “Ramaphoria-related” jump, something we also saw briefly in national business confidence.”
This excitement, however, has largely dissipated and it is “back to business as usual in a stagnant economy”.
Loos says few agents point towards housing stock constraints in the market, and more point towards ample stock, translating to more properties available than buyers.
Comparing the figures, he says 3.4% of agents reported stock constraints in Q1, increased slightly to 4% in Q2. However, those saying they have ample stock available also rose, from 6.7% in Q1 to 7.3% in Q2.
Loos says some increases in the average time of homes on the market are likely to be seasonal, given that Q2 is “typically a weak seasonal quarter for home buying”. But he cautions that “we can’t ignore the signs of a quick reversal in national sentiment following the early-2018 excitement, driven by political leadership changes”.
“That wave of relative excitement was perhaps always going to be short-lived, although we had expected it to continue a little longer. But once the novelty wore off, the reality would remain one of economic weakness and structural impediments to the economy.”
Earlier this month it was announced that the economy fell by 2.2%, the biggest decline in nine years, but Tony Clarke, managing director of the Rawson Property Group, says it is not all doom and gloom, and the property market is not predicted to see dramatic repercussions. This, he says is because the market is not driven purely by investors, but by people needing a roof over their heads.\
“That need doesn’t disappear because our economy hits a speed bump, and the resultant reliable demand makes property a more resilient asset class during otherwise unstable economic times.”
He does acknowledge that even though people will always need homes, the economy does influence how they achieve this. “We tend to see fewer people taking the leap from renter to first-time buyer when times are tough.
“That’s not necessarily a bad thing for the market because property goes through cycles and a dip in one segment often boosts another. In this case, higher rental demand creates opportunities for buy-to-let investors.”
Homes stay on market longer
The FNB Barometer compared the state of the national property market in both Q1 and Q2 of this year and found the differences to be:
*The length of time that homes remained on the market increased from 14 weeks and one day in Q1 to 16 weeks and 4 days in Q2.
* Ninety-six percent of sellers were asked to drop their asking prices in Q2, compared to 91% in Q1.
* The estimated magnitude of this drop increased from -8.2% in Q1 to -9.2% in Q2.
* In Q2 only 4% of agents said there were stock shortages in their areas. While this is slightly up from the previous quarter’s 3.4%, it remains very low compared to the 24% high of early 2015.
Gauteng is the best performer
When looking at the performances of metros in major provinces, the FNB Property Barometer found homes in Gauteng’s metro averaged 14 weeks and one day on the market in the second quarter of 2018.
The Tshwane metro had the strongest market. The aggregated time of homes on the market in the three major coastal metros – Cape Town, eThekwini and Nelson Mandela Bay – was 20 weeks and one day.