If you’re thinking of buying your first home, this may be a good time to do so, but don’t put it off for too long – there are signs that the residential property market will see a turnaround in months to come, after what have been a gloomy few years.
Next week’s anticipated announcement by the South African Reserve Bank (SARB) to start lowering interest rates, signalling the beginning of a series of rate cuts over the next year or so, all going well, will add to the optimism.
Only a few months ago, the property market, in line with the economy generally, was in the doldrums. A report in “Personal Finance”, “SA house prices are going nowhere” (March 2024), quoted the FNB House Price Index, which registered year-on-year growth to the end of 2023 at 0.6%, the lowest recorded by the index since the global financial crisis in 2008. With inflation at 5.4% at the time, it meant house prices fell in real terms by 4.8% in 2023.
The most recent FNB House Price Index, for August, shows no improvement, but it does suggest the market has bottomed out. The suspension of load shedding, optimism following the outcome of the general elections, an easing of inflation, higher-than-expected economic growth in the second quarter, a stronger rand, and anticipated lower interest rates going forward have all contributed to the positive sentiment.
Siphamandla Mkhwanazi, FNB senior economist, says: “We have revised our inflation outlook downward, primarily due to a quicker strengthening in the rand exchange rate as domestic political uncertainty has eased and global sentiment improves. This led us to anticipate an earlier interest-rate cutting cycle. We now forecast two 25 basis-point repo rate cuts this year and another 25 basis-point cut early next year. Furthermore, we have increased our GDP growth forecast. These adjustments suggest a slightly more optimistic outlook for buying activity and house price growth in the coming years.”
The FNB House Price Index growth averaged 0.6% year-on-year in August, unchanged from the 2023 figure, although Consumer Price Index inflation is down to 4.6%, meaning that real house price growth has risen to –4.0%. Growth in mortgages slowed to 2.5% in July from 2.7% in June, reflecting subdued demand and house prices, as well as stringent lending criteria. On a positive note, in the rental market, FNB data indicates that vacancy rates for flats have decreased.
Property market data provider Lightstone reports that sales of properties valued at more than R250 000 were lower in the first half of 2024 than in either half of 2023, and its figure for year-on-year national house price growth is 4.06%.
Note that the FNB and Lightstone data sets differ considerably: FNB uses its own mortgage data, while Lightstone’s figures come from the Deeds Office which, although providing a broader picture, lag the market by a few months.
Despite the overall decline in sales, there are some positive signs. “The proportion of negative sales, where a property sells for less than it was bought for, has decreased from the second half of last year's levels, suggesting a potential easing of the tough conditions homeowners have faced since Covid,” the Lightstone report says.
First-time-buyer numbers were also up marginally on the 2023 figures. This is understandable, as most regions are experiencing a strong buyer’s market, and first-time buyers stand to benefit the most because they don’t have to sell in order to buy.
Calvin Crick, the managing director for transaction services at Cushman & Wakefield | Broll, says the SARB’s decision will depend to a certain extent on whether the US Federal Reserve begins cutting rates, a decision which will also be made next week.
“The SARB will watch the US central bank’s moves closely. It appears the SARB has been waiting for the US central bank to start cutting before it embarks on its own interest rate-cutting cycle,” he says.
Crick says a long-awaited interest-rate cut will transform the broader property sector, including commercial properties and developments. He says more individuals and investors buying properties in a low-interest rate environment will stimulate the property market. “With cheaper financing options, there may be an uptick in property transactions and development projects,” he says, “which will, in turn, boost South Africa’s economy.”
PERSONAL FINANCE