Good news for real estate industry as country veers from technical recession because of 3.1% economic growth
The growth of South Africa’s economy in the second quarter of 2019 is “excellent news” for the country’s real estate market, says BetterBond chief executive Carl Coetzee.
This is because the property market is dependent on positive sentiment, which is likely to begin bubbling following the announcement the economy grew by 3.1% and steered the country from a technical recession.
South Africa now also has a better chance of avoiding a sovereign debt rating downgrade when Moody’s reviews the economy in November, Coetzee says. Moody’s is the only one of the top three agencies to still award the country an investment-grade rating.
Losing that would be an “automatic signal” for institutional investors to withdraw billions of rand from South African markets. “On the local front, news of the GDP turnaround is likely to improve economic confidence and bolster a domestic spending increase that has resulted from the slight decline in interest rates in July.
“That is excellent news for the real estate industry, which is dependent on positive sentiment. “What is more, we have already seen the real estate market continuing to grow in the third quarter and are confident it will improve further in the coming summer sales season, because owning a home is still a major aspiration for a large percentage of South Africa’s population,” Coetzee says.
“To illustrate this, the latest available Reserve Bank figures show a year-on-year increase in outstanding household mortgage balances of 4.6% at the end of July.”
Furthermore, the latest BetterBond statistics show a year-on-year increase of 5.2% in the number of bond applications received at the end of August, and a 14.7% increase in the number of applications approved by the banks.
Although there has been slow house price growth in recent months, which is to be expected in a poorly performing economy, regional director and chief executive of Re/Max of Southern Africa, Adrian Goslett, says it should not be viewed as an indication that the real estate market is at a standstill.
“Even in a challenging economy, the need for housing will continue to exist, whether this comes in the form of a new job that requires you to find a place closer to the office, or a baby on the way who requires you to find a place with an extra bedroom,” he says.
Goslett says the higher price brackets will be hit the hardest by this season, but this could translate into increased activity within the more affordable price segments.
Citing the Re/Max National Housing Report for Q2 2019, Goslett notes that the number of transfers. both bonded and unbonded, recorded at the Deeds Office between April and June increased by 6% from last year and by 14% from Q1.
“Still, having weathered nearly two full years of slow growth, it is understandable that investors may be wary of expanding their property portfolios at present,” says Schalk van der Merwe, franchisee for the Rawson Properties Helderberg Group.
However, when examined as part of the typical 10-year property cycle, market conditions may not be as dire as they appear. In fact, experts say now could be the ideal time to embark on new property investments.
“Conditions closely mirror those experienced at the end of the 1998 to 2000 and 2008 to 2010 property market contractions. Both of those cycles experienced a two-year period of minimal growth followed by a slow recovery, which picked up speed shortly thereafter.”
Now, almost 10 years later, the market has gone through a similar two-year contraction and is starting to see signs of recovery taking place. “That suggests a similar upswing in the property industry is just over the horizon, making this the perfect time to buy and to benefit from maximum future growth,” Van der Merwe advises.