People need a roof over their heads, making property a resilient asset
Expectations about how strongly the property market will finish the year have simmered down after a surprising dip in enthusiasm over the past few months. Still, some property experts hope it will improve. Others, however, are not as optimistic.
Predicting the market is always difficult, but Stuart Manning, chief executive of the Seeff Property Group, says indications are that the economy is poised for growth “if we can just clear a few hurdles”.
“Regardless of the challenges, there is always a level of activity in the market and you can still conclude a good deal provided you know where the ‘sweet spot’ is.”
Also, he says, while many areas are struggling, some are performing well. Arnold Maritz, southern suburbs co-principal for Lew Geffen Sotheby’s International Realty, however, believes the market will stay similar to what it is now. “It has become evident that growth in the national economy may not increase much until there is more certainty regarding the future, which will include issues around the mining charter, attracting foreign investment, and land expropriation. There may only be significant changes after the outcome of the 2019 national elections.
“It is clear property prices and sales volumes in Cape Town will probably stay stable and at current levels for quite a while, and no immediate or short-term upswing should be expected.” Chris Cilliers, Winelands principal and chief executive of Lew Geffen Sotheby’s International Realty, hopes the market will have its natural upturn towards spring, but agrees the factors influencing the market are not likely to change much until after the elections.
Richard Hardie, chief executive of Knight Frank Residential South Africa, also does not believe the situation will change much over the next six months. But there may be green shoots towards the end of the fourth quarter, especially if it continues to rain throughout the winter.
“Also the weak rand will attract international buyers, especially in summer.”
However, Johan van Bosch, principal of Just Property in Claremont, believes the market will slow based on a number of macro factors, including:
- The President Cyril Ramaphosa effect.
- The economy as a whole.
- The currency and the world stage.
- Local unrest.
- Land reform.
He says Ramaphosa’s honeymoon period is waning, and the president now has to balance land reform with voter expectations. Furthermore, the business confidence index rose to 45 in the January to March period but is now down to 39.
Van Bosch says local unrest is at “an all-time high” and people will continue to disrupt the status quo unless their basic needs are met. In addition, land reform without compensation has not been clarified, but the ANC has strong views on this issue, ultimately resulting in most long-term property investors being scared away.
“Based on these factors, the second half of the year will be challenging for the property market,” says Van Bosch. Nick Pearson, regional director of Tyson Properties Western Cape, has the same opinion.
“The next six months in the Western Cape is going to be a slower market than usual as the gravity of what this country has to go through to turn the ship sets in. “The issue around land expropriation has to be dealt with and if done in the right manner, we could go into summer and expect good, steady sales through this period.”
Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa, says the company is choosing to remain positive but realistic in its predictions for the rest of the year.
“With many of the reasons that caused this deceleration still not fully resolved, it is unlikely we are going to see a complete turnaround in the market before the year is out,” he says.
“According to Lightstone’s House Price Forecast for the rest of 2018, prices are predicted to grow by 3.8%, with sectional titles growing by 4.3% and freehold titles lagging behind at 3% growth. We share their sentiments and predict a slow but steady increase in property prices.” Mike Greeff, chief executive of Greeff Christie’s International Real Estate, believes “a realistic prediction” for the remainder of 2018 is the increased popularity of sectional title and security estates, with both these markets representing a significant portion of the city’s property sales.
“It is a sustainable and viable sector to invest in, as either a buyer or as a developer. The appeal of secure living with the feeling of belonging to a community is a very enticing prospect to first-time buyers, empty nesters and investors.
“While the Cape Town property market has shown signs of a market correction, especially at high-income levels, the comparatively affordable suburbs have shown growth.
“If anything, the next six months could see the start of a gradual upswing in the economy which could equal, if not better, last year on a six-month basis if political instability subsides.” Tony Clarke, managing director of the Rawson Property Group, says property market demand is not driven purely by investors, but by people needing roofs over their heads.
“That need doesn’t disappear just because our economy hits a speed bump, and the resultantly reliable demand makes property a much more resilient asset class during otherwise unstable or volatile economic times.” But although people will always need homes, the economy does influence how they go about achieving this.
“We tend to see fewer people taking the leap from renter to first-time buyer when times are tough, for example. That’s not necessarily a bad thing for the market.
“Property goes through cycles and a dip in one segment often boosts another segment. In this case, higher rental demand creates great opportunities for buy-to-let investors,” says Clarke.
Highlights of first six months
- Positive political changes at the beginning of the year kept the property market ticking over following an uncertain and difficult 2017.
- The slight increase (0.5%) in average property prices across the peninsula.
- Western Cape price correction saw property here becoming more affordable for South Africans.
- Increase in optimism over about the country’s economy.
- Cape Town’s property market remains active and competitive.
The lowlights experienced
- The cooling off in Cape Town property prices following rapid and big price rises in recent years.
- The impact of the drought on semigration, particularly from Gauteng, and tourism.
- Land expropriation uncertainty.
- Increasing fuel costs – and the VAT increase – impacting the economy, thereby affecting costs of transport, food and basic necessities, and reducing household disposable income. These factors make property affordability even more difficult.
City and seaboard in demand
- The continuing demand for sites from developers in Cape Town shows their real long-term belief in the increasing popularity of city living.
- Rental markets in the City Bowl and on the Atlantic seaboard have tripled while many other rental markets are suffering.
- The postponement of Day Zero and rising daily rainfall has put to rest concerns about potential foreign buyers.
- The Cape rental market is facing vacancies for the first time in years.