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Part one: Another feeble year for SA’s housing market

However, finding value in SA’s residential property market is now, more than ever, location specific.

It is becoming increasingly difficult for homeowners to make money from their homes given the humdrum capital appreciation on residential properties that has signalled a slow recovery of SA’s housing market.

Globally house prices and demand fell at the height of the 2008 financial crisis but have started to recover since 2012, albeit at a glacial pace.

Yet SA’s housing market has been riding out the perennial slump as national house prices have barely kept up with inflation over the past five years. Measly and negative house price growth seems to be the new normal and the days of achieving double-digit growth are long gone.

Latest data from FNB reveals that since May this year, nominal house price growth (not inflation adjusted) has been declining from highs of 6.9% between January and April to a paltry 1.9% in November year-on-year – the slowest growth since July 2011.

The average price of a property (in nominal terms) in SA is currently 34 percentage points lower than in January 2005, a boom year for the residential market. In real terms (inflation adjusted) house prices are in the red, with property prices falling by 3.5% in November year-on-year.

And it gets worse. A number of property economists have downgraded their 2016 house price forecasts.

In January, Absa Home Loans property analyst Jacques du Toit and FNB property strategist John Loos expected the residential market as a whole to clock up nominal house price growth of 5% in 2016. However, estimates have since been downgraded to 3% to 4%. Negative growth of 1.5% to 2.5% is projected after inflation is factored in.

You don’t have to look far for reasons behind the renewed pressure the housing market is under: the slow pace of economic growth, rising interest rates (which have risen by 200 basis points since the hiking cycle began in January 2014), increased political uncertainty and waning consumer confidence.

Ronald Ennik of Gauteng-based Ennik Estates, who noted the decline of the residential property market in the beginning of 2015, says the market is mirroring the poor state of the economy. “If people are feeling buoyant about the economy and country, they tend to visit property show days. If they feel like the big picture is looking stormy then they batten down the hatches rather than come out and explore new properties and new locations,” Ennik tells Moneyweb.

Even property sales/transfer volumes across the country are following the downward house price trend. Deeds office records show the total value of residential sales have edged up slightly over the past five years, but the number of property transactions are starting to decline to between 65 000 to 80 000 per quarter (See graph below).


Source: Lightstone Property quoting deeds office records

Jawitz Properties’ CEO Herschel Jawitz says lower sales volumes may indicate that buyers are more cautious about the home buying decision and “are looking for value as the key decision-making criteria in choosing a home to buy”.

It may also infer that homeowners are opting to stay in their homes longer due to affordability issues instead of constantly upgrading to a bigger home.  Before the financial crisis, homeowners would hold a mortgage for up to five years before selling a property, this is now more than ten years.

Seeff Properties chairman Samuel Seeff says homeowners are holding on to their properties longer especially in the middle to upper end of the market (properties typically valued above R2.5 million) that incur higher municipal rates and taxes, and whacking transfer duties tax. “Some are opting to stay in their properties longer and make changes such as renovations to their properties,” says Seeff.

It’s not all doom and gloom as there are a couple of silver linings. Firstly, finding value is increasingly becoming location specific, with some areas showing resilient growth, says Seeff.   

Underscoring this is the Western Cape (specifically Cape Town), which has bucked the national trend, showing double-digit price growth of 10.5% for the third quarter of 2016 compared with Gauteng’s measly 2.1% according to FNB. Other regions have remained in the low single digits (See graph below).



Source: FNB

The Western Cape’s performance has been fuelled by the steady movement of people to the region from other parts of SA, mainly Gauteng.  Also, the perception that the Mother City is the best-run metro in terms of service delivery, the lifestyle offering and good government-run schools is a big drawing card.

The second silver lining is that the interest rate rising cycle might be over and coupled with house prices that are under pressure, homeownership may now be within reach from an affordability perspective. Seeff says first-time home buyers, who have been sitting on the sidelines this year, might enter the housing market from 2017.

For now, interest rates have dampened the first time home buying market, with FNB’s figures showing that the percentage of these buyers has fallen back from an early-2014 high of 28% of total home buying to 18% by the third quarter of 2016.

Expect more of the same in 2017, as house prices will remain in the low single digits. Jawitz expects house prices to accelerate by 5% to 6% in nominal terms in 2017. He adds that in real terms, house prices “will ‘break even’ or marginally decline depending where inflation ends up”.

  • Part two looks at the reasons behind the Western Cape’s resilience.
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not sure why a photo of an American home is shown – anyway. this I am afraid is yet another reason why almost all sa’s are falling behind the incredible growth in asset prices that most countries have experienced during the period of almost zero int rates (which thankfully is now coming to an end). what this article says is that after inflation there has been ZERO growth in property prices – apart from w cape. and even in the w cape we need to drill down even further – down to the area Llandudno to cape town docks area -maybe 15km long. the so called atlantic sea board. this area covers exactly 40,000 registered voters out of a total 40,000,000 – ie 99.9% of people in sa are going backwards. yet most of the media deals with this slice of sa only!!!!!

Let it go Bob. 70% of Australia is covered in desert and the other 30% is covered in Australians, so whatever you buy in SA will always be a bargain and a good investment.

I think u need to check yr stats abt aus. to give a real example – I sold a house in tokai in 1983 for R125,000. at that stage the rand = aus dollar. we arrived in aus in ’86 and a year later bought a house in Sydney for $125,000 (ie R125,000). that house in tokai is now woth abt R4.5m – that house in Sydney is worth $1.75. (R17.5m. to my mind I am R13 million in front!!!!

I previously commented that the atlantic sea board property excludes 99.9% of people in sa! BUT even if we look at a specific property – 45 fishermens bend Llandudno – which was featured in the FT for sale for £3.9m (R45M)in sept 2011. it was sold for R43m a couple of years ago which in current terms amounts to £2.44m – not a good investment for our (ex-)friendly overseas investor

Cape Town is way over priced – R2mill for a house in Athlone – Cape Flats!!!!!!!!

I am guessing that’s the asking price, they will never get R2m. Asking price is NOT selling price.

Let it go Bob. Living in a house in Brakpan growing at -5% a year still beats staying in a two bed cluster down under among the wattle trees

Wouldn’t send my worst emeny to Brakpan, Sydney is one of the best cities in world.

Waaaaaayyyyy too many Australians

Sydney is a very nice city IF you have a $1m+ to spend on an overpriced house.

I think u need to check yr stats abt aus. to give a real example – I sold a house in tokai in 1983 for R125,000. at that stage the rand = aus dollar. we arrived in aus in ’86 and a year later bought a house in Sydney for $125,000 (ie R125,000). that house in tokai is now woth abt R4.5m – that house in Sydney is worth $1.75. (R17.5m. to my mind I am R13 million in front!!!!

2 bed cluster – not sure what this is – we live in a 4 bed room house 10 minutes from the best beaches in the world – 20 minutes on the bus from Sydney cbd – however it does come with a hefty price tag -R20m!!!!

House prices in South Africa tracks inflation over the long term (since the 1960s). Same in other countries like the USA. Inflation has been hovering at 6% for the last couple of years, so it is no surprise that house prices have also been increasing in that range.

South Africans costly obsession with brick and mortar only makes bank’s rich. Zero growth and paying interest, one way to destroy wealth.

Indeed, keeps the middle class out of the upper class.

Not entirely true.

Once you have a few properties, or you’ve had it for about 5 years, things snowball extremely quickly with rental income paying of any additional properties very quickly while those additional properties also generate their own rental income while appreciating in value and maintenance and interest are tax deductible.

All this while being much less volatile than equities.

yes, but it’s still regarded as income by Sars.Also,the Expropriation act theoretically means that the govt can seize any land that it wants to – not just in rural areas and at a fire-sale price.

If you think property has zero growth wait till you have to pay SARS the tax on your capital gains!

Yes,CT is the best run metro for now,but at a steep price in rates.And property is definately overpriced,overhyped & underwhelming (rubbish construction).Thank the realty co’s for this, because it’s in their interests to drive up prices,never mind the impossibility of young couples affording a home in CT.Property rates should be included in property advertisements – by law. Then we can compare apples with apples.

I’m inclined to agree with you Paolo, but I must admit that I find it quite amusing to see how many people relocate to Cape Town and then struggle to survive in Cape Town.

I’ve heard of multiple cases where people relocate to the mother city, then comes the inevitable salary cut (in relation to JHB) and the expensive housing and they just do not last. They honestly struggle to survive here when it only requires a bit of discipline with your finances.

Oh yes and please do motivate why PE is the current property market, I think you might have information which I’m unaware of.

(posted this on second part too)

I agree 100%

Being a Capetonian, I shake my head at people from upcountry flocking to this overpriced city, and taking a 20-30% pay cut in the process.

When they get retrenched due to our much lower business levels than Gauteng, they will struggle to find another job.

Plus the houses they can afford here are much, much smaller than Gauteng or other provinces (for the same money).

End of comments.





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