It's a real question that buyers and sellers are asking themselves, how is property at home in South Africa performing in a world where everything is uncertain. Coming out of a pandemic, into a recession, and now the Russia-Ukraine crisis resulting in high inflation, buyer sentiment is in question. Luckily for us, Holmz consulted our professionals and did some research to give us a clear understanding on what the property market is really doing.
What Do We Know?
From what our research and experts have told us, we have seen that the affordable market has seen a decline in buyer sentiment. The pandemic catalysed negative pressure on the affordable market through a large reduction in labour market employment therefor resulting in lower-income households have less disposable income.
The middle-priced segments buyers still have high sentiment, and as a result the segment is strong. This is due to good pricing, low interest rates and the work from home trend changing buyer's needs. Although this segment is performing well, there is a potential negative pressure due to international events such as the Russia-Ukraine crisis.
The Affluent market is performing better than we expected. This is due to the pandemic putting negative pressure on pricing in the market. Coming out of a pandemic, buyer sentiment is due to the better-than-expected recovery of the non-labour markets, good pricing, and ultra-low interest rates. Buyers that fall into this market are not affected by the eventual increase in interested rates, allowing for positive buyer sentiment.
What Is the Market Doing?
The growth of pricing in the market has begun to stabilise, this is because of the slowing supply of properties on the market for sale. Our experts have indicated that they expect price growth in the affluent market to continue. However, we have seen that the middle markets price growth has started to slow. Unfortunately, the affordable markets price growth is expected to slow even further due to the slow recovery of the labour market.
The Russia-Ukraine crisis is a continually evolving international event that affects South Africa's economy. Below, we highlight 3 areas of the domestic market in which we expect to be impacted the greatest from the Russia-Ukraine crisis:
The cost of living/inflation and interest rates
Trade/Growth
Confidence
The above means that as inflation increases, interested rates increases, which puts negative pressure on the demand for bonds and eventually price growth. With this in mind, the high yet improving vacancy rates of the rental market, and the general increase in living expenses will put negative pressure on buyer sentiment. Although buyer sentiment has been expected to reduce across all segments of pricing, the affluent market has had a high buyer sentiment. The middle and low-priced segments performance will be greatly dependant on the outcome of the Russia-Ukraine crisis, if the war continues, the labour market will continue to reduce forcing lenders to tighten their lending standards. Although this is a possible outcome, our experts have indicated that it is not expected.
Below is a table indicating the differences in the 2007/2008 market indicators vs the 2019/2020 market indicators.
% Annual Average | 2007 | 2008 | 2019 | 2020 | 2021 |
|---|---|---|---|---|---|
Household debt-to-income | 76.8 | 77.6 | 64.2 | 69.2 | 67.3 |
Debt service cost-to-income | 10.0 | 12.8 | 9.0 | 8.5 | 7.6 |
Savings-to-disposable income | -3.0 | -1.4 | -0.6 | 0.7 | 0.8 |
Prime lending rate | 13.1 | 15.1 | 10.1 | 7.9 | 7.0 |
Inflation | 7.1 | 11.5 | 4.1 | 3.3 | 4.6 |
HPI (high/low) | 16.0/11.0 | 9.3/-5.8 | 3.7/3.0 | 4.1/1.3 | 5.1/3.4 |
Mortgage volumes | 207 331 | 130 320 | 106 958 | 103 655 | 135 931 |
Average loan-to-price | 94.9 | 94.4 | 90.9 | 92.5 | 92.8 |
Share of volume finances at 100% or more LTP | 22.1 | 22.8 | 7.7 | 9.7 | 10.8 |
*Data up to 3Q21 || Source, SARB, StatsSA, Deeds Office, FNB Economics
What Can We Expect to Happen?
Its expected that buying activity will remain relatively positive in the medium term, price growth should also stabilise and lower levels than compared to 2021 (3.5% from 4.2%). We expect that rising interest rates will reduce the affordability and attractiveness of home ownership relative to renting, the rental market should perform well because of this.
An obvious economic weakness in South Africa is the weak employment growth in labour markets, this slow growth lags economic growth. However, the wage bill has recovered to pre-pandemic levels and there is strong growth in our non-labour market, and a continued preference for owning a home should counteract the above negatives.
The Affordable Market: The affordable market price growth is expected to moderate, relative to the strong growth in prior years, as the labour market weaknesses and higher interest rates reduce affordability. However, the lack of supply of properties in the market should support price growth.
The Middle-Priced Segments: Buying activity should continue benefitting from the attractive interest rates, and the pandemic induced changes in housing needs. The stability of prices in this segment is expected to be well supported from the less-than-expected loss of middle-class employment, and the recovery of wages.
Affluent Markets: The buyer sentiment in the affluent market is expected to be continually supported through good pricing, a strong recovery in non-labour income and working from home. The supply of properties in the market will also support price growth, as emigration sales have slowed since its peak in 2019. There is less supply pressure from the construction of new properties and there are fewer properties on the market for sale as some sellers have decided to have a "wait-and-see" approach during the pandemic. Emigration related sales may also increase as global travel restrictions have started being lifted, allowing for easier international travel, however it is expected that the volumes will not reach the 2019 peak.
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