External factors turn optimism to caution

The downhill slide to the end of 2018 could be more an uphill struggle for the country’s property market, with external factors leaving it facing a bleak outlook.
South Africa’s slow economy and rising living costs chiselled away at the optimism felt at the start of the year, leaving the “Ramaphoria” effect now pretty much non-existent.

Added to this is uncertainty surrounding land expropriation without compensation and its expedience ahead of the general election next year, says Stuart Manning, chief executive of the Seeff Property Group. Household budgets are under severe pressure due to rising costs, the most recent being yet another petrol price increase. 

“The economy is characterised by low investment, constrained confidence and uncertainty about property ownership. The rich and those with money to spend on houses are holding back, which is concerning for the market.”

After the outcome of last year’s ANC elective conference, Arnold Maritz, Southern Suburbs co-principal for Lew Geffen Sotheby’s International Realty, says many in the real estate market expected a financial recovery following the rand strengthening and the positive GDP growth in the first financial quarter.

On the contrary, buyers are now more cautious and issues such as how to fund free tertiary education and property expropriation is making them more nervous, Maritz says.

The resilience of Cape Town’s market is being tested with the volume of sales dropping by just over 17% on a year-in-year basis, and by about 2% when compared with the last six months of 2017 to the first six of 2018.

Despite this, Manning says the ordinary housing market continues to tick over, with the Joburg and Pretoria metro markets seemingly better off than Cape Town’s. 

However, these busy urban markets are usually the first to feel the recovery as it tends to filter through to coastal markets, including Cape Town, afterwards.

“The Cape Town market has seen a cooling off after a rapid rise in prices over recent years,” says Richard Hardie, chief executive of Knight Frank Residential South Africa.

He says the effect of the drought must not be disregarded as this has had a bigger impact than most people realise, especially affecting https://www.property360.co.za/news/semigration-here-is-slowing-14056592.”

In January 2018 FNB anticipated growth of 5% for the year versus 3.7% the previous year, but just three months later, reported year-on-year growth of only 2.6%. 
This, says Johan van Bosch, principal of Just Property in Claremont, leaves a lot of catching up to do to reach 5%. “The surprise was Cape Town with growth of only 1.5%, way below the national average. This compares with 10.9% in second quarter 2016.”

Although there have been reports of high investor confidence in South Africa, Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa, says many investors are choosing not to enter any new projects until the future becomes clearer. Some regions, however, such as KwaZulu-Natal and Gauteng, continue to show promise. 

Quoting from a first quarter Standard Bank index, Goslett says provincial indices contribute the mild growth in the national house price largely to KwaZulu and Gauteng. On the other hand, the Western Cape – Cape Town in particular – is showing its lowest growth rates since the second quarter of 2014.

“This, however, is unsurprising as most real estate professionals predicted that values in this market were beginning to over-inflate, and that a natural realignment would eventually occur.”

Despite the current market situation, Mike Greeff, chief executive of Greeff Christie’s International Real Estate, believes the property market in Cape Town remains resilient and “should still expect good gains and good returns on investments”.

“With Day Zero averted for the next two years, the immediacy of the water crisis is over, and we believe Cape Town will have a good chance to prepare adequately for any foreseeable water issues.”

To add to the optimism, Nick Pearson, regional director of Tyson Properties Western Cape, believes there have been “some fantastic decisions” made by the country’s leadership, and that within a year from now, South Africa could experience “very good economic growth” and become one of the world’s top emerging markets. “However this is going to take a lot of hard work.”