South Africans need more incentive to invest in property in these current times as the security of owning a brick-and-mortar asset is, for many, not attractive enough to outweigh the risks and challenges.
Of course, there will always be people buying homes as the desire to own the roof above your head is a deeply entrenched one among our people, but this does not mean the weak economic environment or the financial struggles households are facing can be ignored.
Other factors that cannot be ignored when evaluating property market conditions include the levels of service delivery – or lack thereof – in many municipalities, tenant affordability struggles, and unreasonable asking prices of homes on the market.
As tomorrow’s State of the Nation Address looms, property experts share their thoughts with IOL on the state of South Africa’s property market.
CHALLENGES
The biggest challenge facing the property market at the moment, says Samuel Seeff, chairman of the Seeff Property Group, is the rising interest rate.
“The reduction in sales volumes last year is evident and we need to incentivise the market to buy and invest in property.”
Citing 2020 research conducted by Professor Francois Viruly of the Urban Real Estate Research Unit at UCT, he says the property market is a significant contributor to South Africa’s GDP, and that it contributes about three direct and indirect jobs for every R1 million generated.
Yet while the “aggressive” rate hikes have naturally weighed on the property market, and there have been price corrections from the mid-2020s to 2022, Seeff says the market is still “slightly ahead” of the pre-pandemic level. And although this is likely to settle back further this year, he continues to see the market as “stable”, with semigration and foreign buying having a favourable impact on the Western Cape “which remains somewhat of a seller’s market”. Prices here are under pressure though.
“Inland areas such as Johannesburg and surrounds, and other towns where we continue seeing people looking to semigrate from to the Cape, are beginning to see pressure on asking prices and longer sales cycles. In some areas, we are beginning to see a buyer’s market, although there is no room for bargain hunting.”
Paul Stevens, chief executive of Just Property, feels that the biggest challenge facing the market at present is the fact that, in many parts of the country, more lease applications are declined than accepted because tenant affordability and/or payment behaviours do not meet strict vetting requirements.
“I think there are going to be some challenging times ahead with the semigration that is taking place and how the local municipalities are going to cope with the improvements in infrastructure that will need to be made to cater for the increase in population.”
South Africa’s housing market remains fragile, amidst a weak economy, surging inflation and rising interest rates, says Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty. It’s therefore no secret that the market is currently under “considerable pressure”.
“However, it’s certainly not all doom and gloom – and not all markets are equal...
“And whilst we are by no means out of the woods, indicators are showing us that 2023 has the potential to deliver a somewhat smoother 12 months – if our government makes critical decisions that support economic growth rather than protect the interests of a few.”
REASONS FOR OPTIMISM
South Africa’s housing market has been sluggish during the past few years, largely due to high unemployment and weak household finances, but with inflation surging and interest rates on the rise, Geffen says the gap between nominal and real prices has begun to widen again.
And if anything positive can be found in this, she notes that is should be remembered that where there are wide gaps between asking price and selling price, the rental market continues to be stimulated.
Stevens believes there are enough South Africans aged 20 to 39 in the country to give property owners and practitioners reason to be optimistic about opportunities in the residential property market. With the right economic opportunities, there is scope for many first-time buyers to enter the market, he says.
“For those who own property, there are plenty of opportunities to create long-term wealth, despite the ‘doom and gloom’ messages in the media about rising interest rates and the increased cost of living.”
For example, he says three South African cities have been recognised globally as ‘Most Loved Destinations’. These include Hermanus (#18), Stellenbosch (#34), and Cape Town (#40).
“Having our cities ranked globally is good news for our property market.”
STRENGTHS AND WEAKNESSES
Putting things into perspective, Stevens acknowledges that activity in the residential sales market has started to slow down due to the increase in interest rates over the past year and the small hike last month. However, even if we have another increase of 0.25% or 0.5% in the coming months, he believes it “will not drastically influence the market”. This is because the market is “really just normalising after a really good run since the end of the Covid lockdowns in 2020”.
He also states that the rental market is buoyant, with strong demand for properties. The bad news though is that we face a credit crisis in this country that negatively affects tenants.
“As the government gets inflation under control, it will hopefully ease up the crunch on the consumer which will start to bring strength back into the rental market. Rental growth over the past couple of years has been very low, and vacancy is still high in parts of the country like Gauteng but we certainly have seen this starting to improve and believe this year will be a good year for rentals.”
In terms of property buying, he says South Africa is in crisis – which is pretty much our normal – and that a good crisis should not be wasted.
“The municipalities that operate well, collect taxes, and invest in infrastructure, and those that rally local businesses and communities to help provide manpower and advisory services, will be the places to invest in.”
Even though market sentiment is negatively affected by media reports, particularly in relation to service delivery, interest rates, and the cost of living, Stevens says the reality of living in South Africa means there is seldom an ‘easy ride’.
“But one only needs to look at construction projects around the country to get a sense of the existing opportunities. There are massive capital investments in residential developments around the country and that is an indicator that the property market is going strong.”
Evaluating where the South African property market’s strengths and weaknesses lie, Seeff says: “There is plenty of stock (and keen sellers) and a steady flow of buyers, although fewer now given the economic challenges, but asking prices in some upcountry areas are not attractive enough and they will need to adjust if they really want to sell right now.”
BUYER’S VS SELLER’S MARKET
Overall, Seeff sees the market as relatively balanced for both buyers and sellers, but points out that there are some “favourable signs” for buyers – mostly upcountry where properties are taking much longer to sell and sellers are keen to emigrate or semigrate.
“The property market is still very active, especially in the lower price bands where prices have held strongly. It has always been very resilient. Sales volumes may be lower, but the market continues to tick over as people need to buy and sell for various reasons.
“Some areas continue to do better while others are feeling the pinch, but we are not seeing a dramatic decline in the market based on current conditions.”
He adds: “South Africa is fortunate that we did not see the dramatic price hikes experienced in many other global markets, hence the slower volumes not resulting in any price decline, and prices generally holding.”
In general terms, Geffen says it can be said that we are in a buyer’s market, however, in some areas (and sectors) it’s definitely swung towards a seller’s market with demand once again starting to outstrip supply.
“For instance, with more people having moved to the Western Cape (3317) during 2022 than to Gauteng (1639) and KZN (822) combined, the province is now home to nine out of 10 of South Africa’s top suburbs according to Lightstone’s average transfer values and the markets in these areas are very active.
“And the Southern Suburbs in Cape Town is currently experiencing stock shortages in many areas, especially in the mid-market sector with well-priced freestanding family homes being especially sought-after.”
As to whether the country is experiencing a buyer’s or seller’s market, Stevens says the answer depends on where you are in South Africa and what your property offers.
He explains:
- Semigration persists, and the Western Cape is the province that is right up on the leader board. This is not only Cape Town but many of the small towns both inland and along the coast. In many of the coastal towns like Hermanus, Mossel Bay, George, Plettenberg Bay and St Francis Bay, for example, it is most certainly a seller’s market, with high demand and properties in short supply
- Owners who have invested in sustainability features, such as solar power and boreholes, will find their properties in more and more demand, and with that comes better negotiation power. An informal survey of Just Property agents recently revealed that being ‘off the grid’ can add to the perceived value of a property. Off-grid homes are becoming increasingly sought-after.
Geffen adds: “Nationally, there is certainly potential for a stronger market, however, critical factors like the energy crisis and political instability are fuelling growing investor caution, both locally and abroad.”
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