Weekend Argus (Saturday Edition)
Property market still on the up and up
All things considered, it is still a positive phase despite gloomy economic environment, say agency bosses
THERE is no slump in sight for the property market yet, according to Samuel Seeff, chairman of the Seeff property group.
And Dr Andrew Golding, chief executive of the Pam Golding Property group, says despite a current rather gloomy economic environment, the residential housing sector has been in surprisingly positive territory.
“While the banks are now pointing to downward rather than sideways movement in volume and price growth, this is an expected economic fallout,” Seeff says.
“The market is slowing, but activity is still higher than it was three to five years ago. Against a poor economic climate, the activity in the market should be seen as good. Unit sales are no doubt down, but this is at least in part due to lower stock volumes and the pace of new stock coming on to the market that remains too slow to meet the demand.”
Looking at the activity recorded by Propstats for the Cape metro for example, property sales worth about R12.5 billion have been recorded this year at an average price of R3 million. Seeff says this is about 26 percent more than the R9.9bn in 2010. The average price is also about 50 percent higher than in 2010 when it was at about R2m.
“At the top end of the market too, we can see a much improved position compared to 2010, the last mini-boom period for the market. During that year, only about 20 transactions worth just under R880m were recorded for the metro for the entire year. This year, there have already been about 40 transactions with a combined value of over R1.22bn,” says Seeff.
“Although most demand remains in the primary housing sector, many of the secondary markets continue reporting good activity. Holiday areas along the Garden Route such as Plettenberg Bay along with hot spots such as Hermanus and Pringle Bay are still reporting good demand as are West Coast villages such as Langebaan.
“We also expect the downturn to have less impact than after 2007/8. This is largely attributable to a much improved stock situation. The subsequent tightening of the credit granting criteria has to a large extent mitigated the risk of wide scale financial distress in the property market.
“Over the last two years in particular, there has been a significant mopping up of the properties that had been sitting around on the market. So, demand has slowed in some areas, but most high demand urban areas have fairly tight property inventory levels coupled with still healthy demand.
“That gives us a still nicely balanced market,” says Seeff. “The pace of new properties coming on to the market also remains fairly slow and we believe this will help sustain reasonably good activity throughout this year and into the first quarter of next year.”
Provided that sellers are realistic about price expectations, Seeff believes they can still look forward to good offers and fairly quick selling times. Given the tight property inventory levels, homes will on the whole still sell faster compared to five years ago, save for the very top end of the market where buying is in any event always very selective.
Having said this, even in the top end of the market there is still healthy demand as wealthy buyers continue seeing blue chip areas such as the Atlantic seaboard and southern suburbs as a store of wealth.
“Although the economy will no doubt continue weighing on the market, the upside of the renewed currency volatility and slowing of the Chinese economy may well now be a slowing of the expected interest rate hikes. For buyers, this means they can still take advantage of the interest rate savings on offer. Combine this with the slowed price growth and it is a good time to buy again. For sellers too, it is still a good time to sell.
“All in, we see a market that provides plenty of opportunities at both ends of the scale,” says Seeff.
The residential housing sector is in surprisingly positive territory, says Golding. “Our interpretation of this somewhat surprising trend is that housing demand continues to outstrip supply and like many other parts of the world, the housing shortage in South Africa is on a significant scale in virtually all segments of the market. And, while taking into account affordability concerns and constraints, that demand continues to fuel price appreciation and new stock supply.
“Since the middle of 2012 there has been a trend of nominal house price growth and then above inflation house price growth across many segments of the residential market. Within these there are significant pockets of under- and over- performance, with an example of the latter being house price growth on the Atlantic seaboard in Cape Town of more than 20 percent for the past 12 months.”
He says the lower end of the residential market, sectional title market and major metropolitan areas stand out markedly.
Contributing to the demand in the lower end of the market are young people, with growing numbers of aspiring first-time buyers. This is one of the factors affecting the surge in house price inflation in the townships, which according to FNB’s latest property barometer rose in the second quarter of 2015 by 17 percent from year earlier levels.
“According to FNB in 2014 on average prices for the smallest category of sectional title property increased by 8.8 percent whereas large freehold property prices grew by 5.6 percent. For the first half of 2015 the gap between these two widened to 10.4 percent for small sectional title property compared with 5.4 percent for large freehold.”
Golding says this trend may be due to lifestyle choice and affordability issues but perhaps also reflects the young profile of the SA population. However, this needs to be viewed against the overall freehold market, which in 2014 outperformed sectional title with an average price increase of 6.3 percent compared to 5.6 percent.
More recently the major metro areas continue to outperform non-metros with Cape Town the strongest (9.6 percent in May 2015, according to the latest statistics from Lightstone), but beginning to lose some momentum.
“Johannesburg at 6.8 percent and Tshwane at 8 percent both continue to gather impetus even as the national house price index is on a very gradual slowdown – to 5.3 percent in August.
“A net influx of people to Cape Town and Johannesburg has resulted in increased demand for housing, which has been reflected in these two markets gaining market share.
“Although the market appears to be becoming a bit more challenging generally and while house price growth appears to be softening, our prognosis for the rest of this year and into the first half of next year is a continuation of the current market conditions.
“These are characterised by a shortage of stock, banks competing for mortgage customers and buyers frequently competing for the same property, coupled with an ongoing strong rental market,” says Golding.