Houses of cards
The prices of especially luxury properties plummet with predictions that house prices could fall by as much as 20% as homeowners lose their jobs or take salary cuts.
High-end properties suffering more than those lower down, say experts.
The Covid-19 crisis has pushed an already struggling property market further down, causing house prices to plummet. Worst affected are the owners of luxury properties, while lower down the price ranges, the hit hasn’t been as hard.
However, real estate expert Erwin Rode, managing director of Rode & Associates, predicted house prices could fall by as much as 20 % “in nominal terms” over the next few years as homeowners continue to lose their jobs or suffer salary cuts.
Independent market analyst and founder of BankerX, Koshiek Karan said: “The current investment outlook in South Africa is less of a passing storm and more a devastating tsunami destroying everything in sight.”
A knee-jerk panic selling scenario will trigger faster collapsing prices, Karan said, adding with expiring payment holidays and increasing unemployment, there is likely to be an increase in default bond payments.
“In periods of uncertainty, ideally you have liquidity. If you need to desperately sell your house, that’s when you end up selling at steep discounts.”
But, most importantly, Karan advised to hold off buying a house until at least 2021, with the market showing signs of further deterioration.
Rode said concerned homeowners should consult their mortgagee, emphasising not to live above one’s means. He also said as a last resort, selling one’s property now rather than in two years’ time was an option to consider.
“But this is psychologically a tough one because then you monetise your loss immediately.”
However, if property owners decide against selling, they could end up with an asset with a negative equity.
Rode said higher-priced property would suffer more due to worse price reductions.
Karan said the growth in luxury property values in SA has steadily declined over the past five years, due to a number of factors.
These include pricing tension with mid-value range through new developments, and more people moving towards sectional title living. There are also comparatively fewer buyers and sellers of high-value properties, whereas more stable supply and demand mechanics exist within sectional title properties.
This compounded with an imbalance of buyers and sellers willing to spend more than R1.5 million on a property and fewer people qualifying for loans in this price range, he said.
Property professionals Lyndsay Fowlds and Amy Crisp said they have noticed the affluent property market taking a knock with asking prices, but there was a shortage of buyers in that market.
Fowlds and Crisp say there is still a demand for properties in the R1.8 million to R2 million price region, attributable to the 50-year low interest rate.
Fowlds and Crisp said the most attractive properties for buyers at present were affordable, middle-property markets. This was because of good value for money and low interest rates, which suited people looking to buy property,and stop renting.
“I would even go as far as to say that we are seeing a higher demand in the past few months for the affordable to middle markets,” Fowlds said.
Both Rode and Karan agreed the prognosis for property was grim because of the broader economic situation and government’s lack of intervention.
Karan said property investors would not invest unless they were “comfortable with the future outlook” which, he added, “currently looks very grim given the lack of concrete intervention to fix urgent issues”.
Fowlds and Crisp said, despite current uncertainty, “property had always been a safe longterm investment vehicle and had weathered the storms of wars, pandemics and civil unrest”.
This applied to buyers who have bought within their means. –