South Africa has slipped once more into a technical recession and 2018 looks set to be the third year in a row for real house price decline, yet the property market is far from dead assures property experts. What is important is to adjust to the new market realities as they are here to stay for a while.This week, barely breathing a sigh of relief over the (possibly temporary) reprieve in the umpteenth fuel price hike this year, South Africans learnt that the country is now again in a technical recession, barely a year exiting the previous one.
A technical recession happens when the economy is in decline for two consecutive quarters. Richard Gray, CEO of Harcourts Africa explains that Stats SA’s announcement that the country’s gross domestic product decreased by 0.7% in the second quarter of this year, following on a 2.2% contraction in the first quarter, entered South Africa into a technical recession.
Last year the same thing happened after economic activity declined both in the last quarter of 2016 and the first quarter of 2017, but then the economy picked up in the second quarter, ending the ‘technical recession’.
This is quite a comedown. At the beginning of the year everyone was hopeful that the lagging economy would pick up under the new leadership of president Cyril Ramaphosa, but says Samuel Seeff, chairman of the Seeff Property Group, the challenges were much deeper than anticipated. “The poor economic data we are seeing, is all still part of the fall-out of the Zuma administration and poor economic and political decisions,” he says. This is now further compounded by the land reform plans as well as political noise as we head to the General Election in 2019.
Property market slower but not dead
As Seeff explains “the property market is a factor of the economy and any cyclical change in the economy, filters through to the property market. This includes factors such as the GDP and lack of economic growth, challenges to attract investment, rising unemployment, rising costs and lack of income growth, which affect consumers’ ability to spend in the economy and on property and, of course, the interest rate and banks appetite for risk are all things that affect the market. These are beyond the control of ordinary buyers and sellers.”
Add to that the expropriation of land without compensation issue about which the president has lately again tried to still the rising panic by reiterating that there will be no land grabs and that property rights will be protected. The issue has resulted in some property investors being hesitant so far about investing in property.
Sales figures overall are down and house price growth has slowed making it likely that 2018 will be the third year in a row for real house price to decline predicts John Loos, FNB property sector strategist. Economic growth is likely to continue to be sluggish for the rest of 2018 says Dr Andrew Golding, chief executive for Pam Golding.
Says Gerhard Kotzé, managing director of the RealNet estate agency group: “It is true that in most areas we have experienced a slow-down in sales volumes as well as house price growth over the past six months. We also anticipate that this overall pattern will continue for the remainder of 2018 due to the negative GDP growth as well as an oversupply of housing stock in certain market segments. However, the entry level markets are still experiencing high demand and strong activity and positive house price growth is being recorded in the under- R900k price bracket. This is largely due to the banks being more willing to lend to first-time homebuyers entering the market.”
The market is nowhere dead, says Seeff. There are opportunities aplenty in property and the deeds office data shows that thousands of sales transactions are concluded every month.
“While challenging, this is by no means the worst property market that I have seen in my 30-plus years in property – the two main factors which drive the market, is sentiment, which we know is poor and the interest rate, which, at 10% is still at some of the best levels in three decades. SA, the economy and property market has always had to deal with challenges in one form or another and it is important that we adjust to the new market realities, the new normal, because they are here to stay for a while at least,” he says.
Gray notes that real estate increased by 1.9% which shows this sector’s ability to grow despite national economic pressures. Harcourts SA showed an 8% growth over the 2017/18 year on year he adds.
Golding adds it is certainly not all doom and gloom. He says there is a young demographic eager to buy property and a financial sector with an appetite to extend mortgages.
For buyers, there is no better time to buy adds Seeff. “The interest rate is still flat and banks are still lending. If you wait for prices to go down or for anything else to change, you will miss a good opportunity.”
Location is now more important than ever, highlights Golding, as is the type of accommodation to meet the market demand. Look at why certain areas are continuing to boom – they are areas that are fulfilling a particular demand he says such as “suburbs which offer an alternative to congestion, a flourishing business hub and easy access to good schools, for example Claremont in Cape Town or Durban North and uMhlanga in KwaZulu-Natal. Or areas which offer access to good schools and work, but better value-for-money property such as Cape Town’s Northern Suburbs or green mixed-use developments such as Menlyn Main in Pretoria.”
“Pricing “correctly” for your local market at the outset is always the key to selling quickly at only a small discount to your asking price, and that is why sellers require the services of experienced and well-informed estate agents who are constantly in touch with the variations of their particular area and can help determine an asking price that closely matches specific local market realities,” says Berry Everitt, CEO of Chas Everitt International.
“It is important to reiterate that nobody is coming to take your house, it is still safe to invest in bricks and mortar and with such a beautiful country and a lifestyle without compare and still very affordable by international standards, there is no reason to wait, it is time to buy and invest in SA property!” Seeff concludes.
So, buckle up and keep going. In property the darkest cloud always has a silver lining.