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Mini budget key to property market's growth

 

Annual house price growth is forecast to be 3.7% in 2020, a figure below the predicted inflation rate of 4.3%. House prices will be mainly weighed on by tepid disposable income growth, as well as low sentiment levels, states FNB's latest property barometer for the last quarter of 2019.

"Marginal support", however, will come from lower interest rates as well as the ongoing adjustment in supply of new build stock. There is the possibility of one more 25bps rate cut by the Reserve Bank which should assist consumers' discretionary income, albeit only slightly.

Generally, FNB property economist Siphamandla Mkhwanazi says South Africa's economic growth is expected to remain "muted" this year, weighed on by the weak fiscal position, weak labour markets impacting negatively on income growth and therefore consumers' spending power, as well as fragile business confidence.

"Of concern for households, and as hinted at in the October mini-budget statement, higher taxes could be on the cards. These could come in the form of bracket creep or higher tax rates or a combination of both. This could exert further pressure on disposable income, and thereby consumer demand."

The expectation is for real GDP growth to "lift slightly" to 0.9% this year, from a low 0.3% estimated for last year. For the residential property market, broader economic developments, especially employment growth, are expected to continue dictating the longer-term trends. Mkhwanazi says.

"Positively, demand (for mortgages) has shown mild signs of improvement across all price segments." At the same time, some sellers withdrew their properties on the market for resale amid unfavourable selling conditions. This has somewhat curtailed the pace of supply. Nevertheless, there is still robust supply of new stock, as well as emigration-related sales.

"On the other hand, inbound demand (from foreigners and expats buying property in South Africa) remains comparatively subdued." Supply of new stock is expected to continue correcting and adjusting to lower demand levels, Mkhwanazi says.

Until then, the housing market is still "slightly over-supplied", says Rode & Associates's Q4 Rode Report. The market is being supported by somewhat lower interest rates and aggressive competition between banks for home-loan business, but overall, it is still struggling.

"Indicators of this are the number of days houses stay on the market and the falling number of serious viewers per show house."

The FNB report says that house price inflation was unchanged at 3.5% year-on-year last month, taking the average annual price growth to 3.6% year-on-year in 2019, from 3.8% in 2018. Depressed labour markets continue to weigh on household finances, which poses a threat to sustained demand growth.

Market strength indicators continue to show a narrowing demand-supply gap, which might have provided support to house price growth in Q2 2019.

To put the year-to-date growth into perspective, Erwin Rode of Rode & Associates says it is similar to last year's growth,but significantly lower than the 5.5% average price growth in the five years between 2013 and 2018.

Of the more than 9800 suburbs in South Africa, Hospitaalpark in Limpopo, Havenside in KwaZulu-Natal and Hartzenbergfontein AH in Gauteng took the top three spots based on growth inflation over the last year, reveals Lightstone.

In 2018, 315899 properties were sold in South Africa amounting to R243billion. More than 260000 properties totalling R210bn sold last year, with Noordhoek in the Western Cape averaging the highest transaction price at R4.5million.

While Cape Town house price growth was traditionally always above the national average, Limpopo took over in October, with 5.9% annual growth.

Most properties here became second homes to affluent Gauteng residents, Lightstone reports. "The increase in mining activity in the province has also had a positive effect on property developments in the area.

"The inland municipalities of Ekurhuleni, City of Tshwane and City of Johannesburg continue at a stable rate of between 1% and 4%, whereas coastal municipalities generally perform above this range.

"The low and mid-value wealth segment continues to challenge the trend by showing an annual growth of more than 4%, while other wealth segments perform below this."

Market Performance

PRICED RIGHT Holiday home buying seems to be shifting from Cape Town to Durban. Picture: Captureson

 

FNB's Property Barometer notes the key themes that shaped market performance last year and will probably continue to have an impact this year. 

Activity in the bottom end

The FNB Estate Agents Survey shows last year a lower-end property had an average of 13; enquiries and six weeks on the market before it was sold. The "conventional" market averaged 9.5 viewers and about 15 weeks on market for sale. Stronger demand was recorded in the R250 000 to R500 000 price range, with 16 viewers per show and five weeks and six days on the market.

Constructive lending and attractive prices propping the market

Transactions volumes trended up last year, in line with the recent upswing in mortgage lending which outpaced house price growth. According to data from the SARB, mortgage advances grew at a progressively faster pace throughout last year, reaching 5% y/y in November. Year-to-date (November is currently the latest data point) the value of mortgage advances has grown by 4.8%. The loan-to-price ratio increased to 91.2% in Q3 2019, suggesting lenders are progressively asking for smaller deposits.

Holiday home buying rising in Durban

Data from the FNB Estate Agents Survey shows while holiday home buying remained relatively muted last year, Durban received increased interest. Data shows holiday home buying to have nudged up to 2.5% (of the total property transactions nationally) in Q4 2019. Holiday home buying appears to be migrating away from Cape Town and towards Durban.

Supply of new stock adjusting lower

Stats SA data shows a huge surge in the supply of new residential units last year, particularly sectional title units. Year-to-October volume of new units was 67% higher than the corresponding period in 2018. There has been a shift from freehold properties to sectional titles in the last two to three years, with the latter now accounting for around 60% of new build units.

Rental reflects subdued demand

Data up to Q3 2019 showed muted rental CPI, which has helped put a lid on overall inflation. Data indicates rental inflation is still the highest in the Western Cape. 


20 Jan 2020
Author Bonnie Fourie
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