ripe for a rebound?
Is property set for a post-election rebound?
Housing activity in many areas has hit a new low in recent months, but industry players are betting on a post-election recovery
Industry players are hoping for a post-election rebound in residential property sales and prices following SA’s worst housing slump since 2009.
Back then, the market crashed in the aftermath of the global financial crisis and subsequent recession. This time around, it seems political and economic uncertainty in the run-up to SA’s general election is to blame.
Seeff Property Group chair Samuel Seeff says buyer "analysis paralysis" set in late last year, as concerns about SA’s future mounted. This was particularly evident in the wealthier segment of the market, where people can afford to put buying and selling decisions on hold.
"Most of the year has been characterised by buyers hesitating, sitting on the sidelines and waiting to see how the elections unfold," says Seeff. "It’s been a period of frustration for property owners who are looking to sell and move on but simply cannot because there hasn’t been demand."
The figures Seeff cites show how lacklustre the market has been: housing sales in the R3m-plus price bracket are down as much as 50% in most areas across SA in the year to date (against the same time in 2018).
The drop in transaction volumes has been even more pronounced in big-ticket areas, such as Cape Town’s swanky Atlantic seaboard and the Joburg suburbs of Sandhurst, Hyde Park and Bryanston, among others.
Only 17 sales above R20m have been concluded in Cape Town in the year to date, compared with 45 over the same period last year, says Seeff. And those were themselves already half of 2017 levels, he says.
The Seeff group nevertheless clinched a record late last year — an R80m apartment sale in Cape Town’s Bantry Bay. But Seeff says these deals have become few and far between. Over the past 12 months or so there have been no sales close to R100m — unlike previous years, when that level was tested a few times.
There have also been notably fewer sales to foreigners. "Foreign buyers are generally concerned about the future of property ownership in SA and the economy," say Seeff.
"Foreigners, like everyone else with discretionary spending ability, will only invest in an area if they’re certain that their money and property will be safe."
Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, reports a similar scenario. Despite depressed sales, the group recorded an average 2% national price year-on-year increase in the year to date, she says. But the Western Cape proved an exception, with prices across all categories down by a hefty 14% — a correction that was no doubt overdue, given the strong rise in the province’s house prices in recent years.
FNB recorded an average 3.8% national house price increase in the first quarter. Industry players believe that price growth has been supported by still steady demand for lower and mid-priced properties in the R700,000-R3m bracket.
But other first-quarter indicators from FNB paint a decidedly bleaker picture of the general state of the SA housing market. For instance, the number of sellers dropping their asking price to clinch a sale has increased to 95.3% — up from about 80% in 2013/2014. For properties priced above R3.6m, every single seller had to accept a lower offer. The average difference between asking and selling prices is at -9.4%, against an average drop of 7%-8% in 2016/2017.
A particularly worrying trend is the rise in the number of people selling to emigrate. This figure has doubled, to account fort more than 14% of total sales over the past two years, according to FNB.
In the upper end of the market — priced above R6m — the emigration-related portion of sales is as high as 18.%.
That’s more than the 15.9% of sellers who said they sold to down-scale due to financial pressure.
Praven Subbramoney, CEO of FNB Private Bank Lending, ascribes the rising trend in emigration-driven selling to a combination of factors. This includes growing political and economic uncertainty and the electricity crisis, that has eroded confidence. Increased globalisation of companies has also made it easier for South Africans to relocate to other countries.
"More companies offer global mobility opportunities for SA staff today than they did in the past, so it has become materially easier to emigrate," says Subbramoney.
The rising number of countries that offer "golden visa" opportunities — where foreigners can obtain residency or a second passport through a property investment — has also opened emigration options.
Subbramoney believes this has encouraged more SA investors to liquidate second properties and holiday homes in particular.
The result of the rising emigration trend, he says, is an oversupply of sales stock in an already softer housing market. The oversupply is particularly prevalent in the holiday home market and the primary market priced above R3.5m.
"So properties in the upper price brackets are staying on the market longer. And the only way to sell is to drop your price."
However, because people who bought in the past three to four years are now unlikely to sell at a break-even point, Subbramoney says many are putting their properties on the rental market instead.
That has also created an oversupply of rental stock, which has placed pressure on rental growth and income yields.
Subbramoney believes that the rising emigration trend and its negative knock-on effects on the local property market can be arrested if consumer confidence is restored.
People who bought in the past three to four years are unlikely to sell at a break-even point, so many are putting their properties on the rental market instead
"If high net worth local investors start buying again, foreign buyers will also return, which will create additional support for sales volumes and prices."
Estate agents voice a similar sentiment. Most believe the market is poised for a recovery now that the election is out of the way.
"The generally market-friendly election outcome will in all likelihood create a degree of certainty and stability, and go some way towards addressing the issues currently affecting confidence in the SA economy," says Pam Golding Properties CEO Andrew Golding.
Historically, he says, there has always been a noticeable acceleration in house price growth in the months after a general election. However, any significant improvement in market activity is only likely to materialise later this year, after the seasonally quiet winter months. The government also still needs to address policy issues — particularly around land reform, he says.
Seeff agrees that there is a need for policy certainty. "People need to know what the future holds," he says.
But he believes good buying fundamentals will support a gradual recovery across SA. He cites flat interest rates, a more competitive mortgage-lending landscape and low or no price growth as key positives for those looking to buy now.
Seeff says one can essentially still buy at last year’s prices. "And given that many properties have been sitting on the market for some time, we are beginning to see more motivated sellers, willing to negotiate on price so they can also get on with buying their new properties."