The weak economy, high unemployment, and rising interest rates have been putting the brakes on the value of homes in South Africa, with price growth steadily slowing over the past two years.
These factors, among others, are also expected to see a drop in the value growth of approved home loans.
As the higher cost of living and increased interest rates “eat into the demand” for homes, Kobus Lamprecht of Rode & Associates says the housing market will “continue to slow”.
Read our latest Property360 digital magazine below
In the most recent Rode’s Report on the SA Property Market, he says the nominal value of residential mortgages granted decreased by 5.1% in the second quarter of 2022 compared to the second quarter of 2021. This decline reduced growth for the first half of 2022 to only 0.8%.
Although there was a spike in house price growth in 2020/2021, this was due to a combination of record-low interest rates and pent-up demand following the pandemic lockdowns. Citing Lightstone data, Lamprecht says house price growth slowed in almost all price segments over the past year and a half. Interestingly, houses worth less than R250 000 have “comfortably managed to outpace inflation”, thereby implying real price growth – although this may not last long.
“The latest year-on-year growth rate in October 2022 was a stellar 9.2% – well above the consumer inflation rate. We suspect the amazing outperformance of this low-value band since 2016 could possibly be ascribed to subsidised houses being sold into the market at market-related prices.”
He explains that these houses can only be sold after eight years, but that if the house is put up for sale, the government should have the first option to buy it.
“So, one can only wonder what is happening here. That said, these low-priced properties are on the market for 13 weeks based on FNB data for the third quarter of 2022 – well above the national average of 10 weeks, which could mean price growth could come under more pressure.”
Price growth in all the other price bands slowed to between 2% and 4% in October 2022 from its peak of about 6% in the middle of 2021. In the mid-value segment, this growth slowed to 3.4% year-on-year in October 2022 from about 6.3% in the second quarter of 2021. This, Lamprecht says, suggests that higher interest rates and perhaps also higher inflation are starting to have a dampening impact on demand from first-time buyers.
Even though high-value and luxury homes “performed better” in 2021 compared to 2020, growth also slowed in 2022 to just under 3%.
“We expect these segments to come under pressure as buyers in these categories feel the impact of the downturn in equity markets coupled with rising inflation and interest rates. Negative sentiment about the electricity supply crisis and the political drama surrounding the ANC could also deter some buyers. But then again this applies to the whole market,” he says.
Pressure on mortgage values
In the medium term, Rode & Associates expects the growth in the value of mortgages granted to also be slow as effective demand from borrowers will be impeded by several factors including:
- a slow-growing economy;
- the South African fiscal cliff, which will be a constraint on economic growth for many years to come;
- the financial pressure experienced by the consumer, related to high inflation and rising interest rates;
- very high unemployment;
- rising utility costs that erode disposable incomes and the competitiveness of the South African industry;
- the fact that property buyers will generally shy away from cities and towns with dysfunctional municipalities, characterised by high debt levels and a collapse in service delivery.
While most metros in the country saw strong growth in 2020/21 due to record-low interest rates, price growth slowed down in 2022, with the exception of Nelson Mandela Bay, which includes Gqerberha.
“Looking ahead, we expect nominal house prices to grow at a slower rate in 2023 due to the weak economy, high unemployment, and increasing interest rates. The severe electricity supply crisis is a huge headwind for the economy. This will make buying a house unaffordable for some households and lead to rising mortgage defaults in some instances,” Lamprecht states.
Little reason to sell
The much lower price growth therefore means that large numbers of new homeowners currently have little incentive to sell, says Gerhard Kotzé, managing director of the RealNet estate agency group.
“They should, in fact, be more inclined to hold on to their properties as safe havens for their families, rather than try to ‘cash out’ and obtain new home loans at the higher rates.”
Although acknowledging that lower global oil prices are likely to bring further inflation and possible interest rate relief to South African consumers in 2023, he says this is likely to be negated by Eskom’s recently-approved 18.65% electricity tariff increase, and potentially higher income and municipal taxes.
“Market expansion is also likely to be constrained by low economic growth (currently forecast at 1.1% for the year) and a lack of new employment creation. However, South Africa’s economic challenges are by far not the worst in the world at the moment.”
Kotzé says most existing homeowners should be able to “ride things out for the next year or two”, especially if they concentrate on reducing their debts.
Properties on the coast
If you own a house on the coast, however, you are in a better position than then rest of the country’s homeowners as price growth for coastal areas has been climbing since 2019. As at July last year, price growth for coastal homes was 7.9% compared to 3.9% for non-coastal homes, the Rode Report states.
But this is not stopping people from buying property in coastal areas, with Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty saying that one of the biggest trends for 2023 will be a semigration boom in coastal areas.
“The wave of semigration we’ve been seeing towards the coast has significantly boosted the market in these areas, with some towns not only experiencing stock shortages but also record sales.
“And, with the now-established work-from-home and safer living trends still being major driving forces in property-buying decisions, it’s unlikely that the steady migration towards lifestyle destinations will abate any time soon.”
She does, however, point out that although the spotlight has been on the move toward the coast, there is also inland migration, especially to Johannesburg.
“This is predominantly driven by aspirant young professionals who are following the money and opportunity trail.”
To find a home in your area or even in a new province, search the sales listings on IOL Property.
IOL BUSINESS