SA’s residential property sector remains under pressure from slowing demand and growth in mortgage loans due to the effects of interest rate hikes.
This is according to Nicky Weimar, group chief economist at Nedbank, who was speaking at the SA Property Owners Association (Sapoa) Annual Convention and Property Networking on Wednesday.
“We have seen slowing in home loans advancement growth, and households are under pressure due to the rapid increase in interest rates,” said Weimar.
Between December 2019 and June 2020, prime interest rates were cut from 10% to 7% resulting in increased home buying activity. With increasing interest rates, this has slowed.
Since November 2021, the Reserve Bank has raised the repo rate by 475 basis points to 8.25% to contain inflation, with the prime rate, at which banks begin to lend, at 11.75%. While warning that the hiking cycle was not necessarily at its end, the Bank kept rates on hold in July.
Weimar said in some residential property markets, the lag could be 12 to 18 months, and even 24 months.
Nedbank has seen slowing growth of 6.7% year on year in May in household loans and advances from 7.9% in January.
Data from BetterBond shows that buyers purchasing property priced below R1m have been affected by the higher rates, thus reducing demand.
BetterBond said there has been a decline in home loans granted for homes priced below R500,000 and R1m for the 12 months ending July 2023.
Weimar said for the next six months the sector will remain vulnerable with less demand and activity, while banks are tightening criteria due to rising bad debt.
Service loans
“We expect a recovery during the second half of 2024 when interest rates would have come down and sentiment improved.”
According to Lightstone data, the 155,000 homeowners who bonded properties in 2021 are paying a total R600m, or 40%, more a month to service loans. Lightstone provides data, analytics and systems on property, automotive and business assets.
Due to the uptick in bad debt Nedbank’s credit loss ratio has risen from 30 basis points in the first half of 2022 to 98 basis points in the matching period in 2023.
Standard Bank’s credit impairments reached 0.48% in the first half of 2023, and Absa’s credit impairment charges rose significantly, from R272m in June 2022 to R975m this year.
Weimar said the embattled office property sector, which is suffering from oversupply and low demand, is under pressure and not yet back at prepandemic levels.
SA office vacancies, which peaked at a new high of 16.7% in the second quarter of 2022, were down quarter on quarter to 15.6% with 3-million square metres of vacant space from 3.2-million square metres in June 2022, according to Sapoa’s office vacancy report for the second quarter of 2023.
Many occupiers continue to downsize office space in line with their business needs while others are adopting a hybrid model, which is working from the office and remotely.
Vacancies reduced
In its annual results for the period ended-June, Growthpoint Properties reported that though businesses continue to consolidate and reduce space, leasing activity has increased, and vacancies are reducing within its portfolio.
Load-shedding has partly contributed to occupancy levels, with many occupiers returning to the office. Growthpoint has seen office vacancies reduce to 19.5% after peaking at 22.4% in March 2022.
Weimar said though the recovery of the retail property sector is a function of consumers’ financial health, the sector will outperform offices. This applies especially to small and neighbourhood malls, which provide essential goods and services.
The Clur Shopping Centre Index shows that smaller centres continued to show resilience in a tough trading environment, with annualised trading density for the June quarter growing 7%.
The industrial property sector will continue to outperform driven by e-commerce growth and demand for logistics and warehousing facilities.
Stefano Contardo, CEO of Improvon, an unlisted property company, said within their portfolio they are seeing a lot of activity from businesses in the warehousing and distribution space.
“We believe the industrial property market will continue to be buoyant, and possibly pick up once interest rates stabilise,” said Contardo.
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