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Realtors warn against excessive positivity

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An expected improvement in economic growth to just above 1% will “not set the world on fire exactly”, hence the expected marginal strengthening at best.

National house-price growth in 2018 is anticipated to be “slightly better” than 2017’s average, which FNB’s John Loos says was 3.7%.

Having said this though, it is only a mild expected strengthening to “perhaps nearer to 5% price growth”, still translating into mild “real” house price decline. 
Loos says: “By this it is meant that average house-price growth is expected to be slightly below consumer price inflation for 2018. 

“Real house price decline is expected to reflect still-sluggish demand, coupled with good supply on the market and little in the way of stock constraints for estate agents.”

The slightly better nominal house price growth expectation, Loos says, is based on a slightly better forecast economic growth rate for 2018, compared to the country’s expected 0.7% for 2017 as a whole. A rising SARB Leading Business Cycle Indicator in recent months suggests this growth improvement could occur. 

However, an expected improvement in economic growth to just above 1% will “not set the world on fire exactly”, hence the expected marginal strengthening at best.

Loos expects consumer confidence to “remain in the doldrums”, given still-weak economic performance. The consumer is urged to be cautious regarding financial decisions.

“This would mean still-moderate household borrowing growth, further decline in the household debt-to-disposable income ratio, and some mild increase in the savings rate. 

“While such developments are healthy ones for longer-term household financial well-being, they would not be supportive of any massive surge in home buying,” he says. 

There will also be only moderate growth in housing demand at best.

“Household sector caution is expected to keep the focus more on essentials, meaning that I’d expect the lower end of the housing market to outperform the higher end, smaller homes to be more in demand than costly-to-run large homes, and the primary residential demand-driven metros to outperform holiday towns.”

In terms of provincial house price growth, Loos expects Gauteng to outperform other provinces this year, but “not by much”.

“Gauteng is the province that, since the end of the pre-2008 housing boom, has made the most progress in home affordability improvements – measured by average house price relative to average household incomes, reflected in stronger rates of new entry to the housing market than in other regions,” says Loos. 

But this does not mean a particularly strong market for any region, including Gauteng.

Echoing this, Seeff Property Group’s Samuel Seeff says the 2018 property market is starting out “taking strain” as a fall-out from the poor economic climate of the past two years and junk status “is still with us”.

“That means the market is still in much the same place as it ended 2017, which calls for prudence on the part of both sellers and buyers.”

For sellers this means market-related pricing remains the order of the day, and Seeff expects that the price growth, at least for the first half of 2018, will remain flat. 

“For buyers, the good interest rate outlook is good news and they can look forward to some saving on their bond. Of course, if an interest rate cut does come through later this month, it will be great news all round.”

Of particular concern though, says Rode & Associate’s Erwin Rode, the dim outlook for the South African economy in light of the dire position of the fiscus remains, as the taxman will have to take a significant extra portion of the taxpayers’ money, not to mention expected further investment downgrades by the credit rating agencies.  

“South Africa’s doors are wide open for business, but expropriation without compensation remains on the agenda – and may remain there for a long time – which, of course, is not good for business sentiment and does not promote intentions to invest. Poor business sentiment is always poison for upmarket house prices.”

For these, and many other reasons, Rode expects the economic growth rate will not exceed last year’s because, during 2017, house price growth trended down in all cities, and in light of the modest prospects for the economy, is set to continue. 

“On average, house prices in South Africa are expected to under perform the CPI by a wide margin. In fact, in Durban prices have already declined by 2% and in Port Elizabeth there is no growth. The latest available growth in Cape Town is about 8% on a year earlier.”

He says one of the reasons for declining growth rates is that banks have been tightening their lending criteria, and this will continue.

Despite this, Pam Golding Property Group’s Andrew Golding says is expected that South Africa’s residential property market will continue to maintain its resilience, reflecting an ongoing healthy appetite for property investment – particularly in major metros and key hubs.

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