Junk status, a downturn in the economy and public holidays have delivered a powerful punch to the market, but the Western Cape remains standing proud ?
South Africa’s credit rating downgrade and the economic downturn is slowly impacting on the country’s property market, with house price growth and levels of buying expected to further decline.
In parts of Joburg and Pretoria, agents already see more home loan inquiries turned down, fewer buyers and more properties for sale.
The overall South African market, however, is generally performing normally, but as professionals caution, there is usually a lag between changed economic status and property market performance.
Due to this delayed reaction, Erwin Rode, CEO of Rode & Associates, believes the country’s poor economic performance will impact on housing price growth and the rentals that households can afford.
He says, however, Cape Town is an exception as house prices continue to grow at double-digit figures against the remainder of the country, which is about 2% points below inflation or worse.
“There seems to be consensus this can be ascribed to ‘semigration’ from upcountry. Confirmation can be seen from traffic in Cape Town, which has become worse than in Joburg.”
Apart from Cape Town, Rode expects prices to grow at less than the inflation-rate for many years, making a house financed by a high mortgage a poor investment.
Explaining his pessimism, he says house prices are still high in real terms and therefore have room to decline, and, secondly, our economy is “now on a low-path”.
“This means the recessionary conditions are not a normal cyclical affair with a sharp recovery thereafter. Rather, it should be seen as a structural malaise which will restrict growth in the long term. Inevitably, all types of investments, including all property, will be negatively affected.”
Much of this is echoed by FNB’s household and property sector strategist, John Loos, who emphasises that although the bank is seeing an increase in home loan volumes, there is also “quite a time lag” from when people begin viewing potential homes until they submit home loan applications.
Until the first quarter of 2017 at least, he says signs of economic improvement, along with mild residential market improvement, were showing. More recently, however, the ratings agency downgrades may have dampened sentiment in April/May to date. Loos says the bank may soon feel it in its own home loan application numbers.
So far there are no widespread signs of panic selling or huge increases in financial stress. Loos says sentiment is “not overly positive” and there has been a mild increase in the percentage of sellers selling to emigrate, from a low of 2% at the end of 2013 to 6.2% by the first quarter of 2017.
“We see a market where sentiment isn’t wonderful outside of the Western Cape, and low house price growth and the market as a whole has not had much transaction growth for some time.
“It is definitely possible the publicity given to SA’s junk status may have dampened sentiment from April onward.”
April proved to be a tough month for some Seeff agents, with Chris Hajec, MD of Seeff Randburg, saying it was “particularly slow”, and the first month this year residential sales did not outperform the previous year. However, he attributed this not only to junk status, but possibly also its timing with the April public holidays.
However, Hajec says he does know of three deals in the office, and cases from other principals, where buyers walked away from signing offers because they were uncertain about the economic climate.
“The clear trend for some time now is the lower the asking price, the stronger the market. Homes over R2 million are spending, on average, longer on the market then those priced lower; luxury markets and secondary markets are likewise experiencing a slowdown.”
He says banks are also more conservative.
“Talk on the street in the weeks following the downgrade spoke of internal jitters in the three major banks, and a desire to constrain the granting of available credit by tightening further requirements on affordability, deposits, credit history, interest rates, etcetera. We have seen banks offering less 100% financing and being stricter around document requirements and financial verification.”
The same is being experienced among agents in Pretoria, and . Lynne de Vos, licensee at Seeff Pretoria North, says on a single day towards the end of May, four deals fell through due to home loans being declined.
“When we do get bond approvals, it is wonderful, except the interest rate is so high buyers then decline the bonds.”
In the Centurion area, the slower economy and junk status has seen an almost 50% increase in the number of properties for sale, says Steve van Wyk, MD of Seeff Centurion.
“Many are sellers downsizing or moving to the Western Cape. Due to excess stock sellers have to drop prices to ensure a sale. Buyers have decreased by 40% so it’s a double whammy.”
There has also been a marked slowing down in inquiries on some listings at Seeff Pretoria East, by as much as 30%, says MD Gerhard van der Linde.
“Most inquiries are on properties below R1.7m, generally those offering security and proximity to work.”
Although Pam Golding Properties’ agents are also seeing the tough economic conditions of the past 18 months having a bearing on the residential property market, and slowing price growth within the province, Rupert Finnemore, the agency’s regional head in Gauteng, says there are still some regional hotspots.
“There is great interest in a number of suburbs and areas. There remains interest in well-priced homes which are secure and conveniently close to transport nodes, as well as centres such as Sandton, Rosebank, Fourways and Midrand, all the subject of development.”
Finnemore says they find many of the areas within the northern suburbs of Johannesburg still attracting buyers and rental tenants. These include Hyde Park, Morningside, Sandhurst, Bryanston, Parktown, Parkhurst, Westcliff and Northcliff.