Semigration, emigration, work-from-home and finances are among the reasons behind a surge of activity in the residential property market that has seen some estate agencies reporting record sales in the past 18 months.
But don’t expect a surge in property prices. Economists say that because of poor macroeconomic conditions and rising interest rates house prices will, after inflation is taken into account, probably decrease over the next few years.
Property economist Erwin Rode, CEO of Rode & Associates, says interest rates are an important driver of house prices and he expects prices to decline in real terms across all segments for up to five years, amid a gloomy global and local economy.
Research house Lightstone Property reports that as at the end of May 2022, national year-on-year house price inflation, excluding inflation, was at 4.46%, “having decreased consistently since early 2021”.
There has been an uptick in activity, with Lightstone reporting that there were 277,056 transfers of residential properties in 2021, compared to 215,797 in 2020 and 246,540 in 2019. So far this year there have been 131,857 transfers.
It will be difficult for residential property prices to keep up with the inflation rate
— Francois Viruly
Property economist and University of Cape Town professor Francois Viruly says it will be “difficult for [residential] property prices to keep up with the inflation rate, which should average at about 6% for the year”.
Viruly says the increasing activity in the market could be partly a result of pent up demand during the pandemic.
“A lot of people were not making housing decisions. I think we are probably seeing a bit of that in the market at the moment — decisions that were not made over the past two years. After that we will need to rely on the performance of the economy.”
But poor economic growth prospects and rising interest rates are expected to influence the market as the benefits of the interest rate cuts during the height of the pandemic work their way out of the system.
“There was a strong performance in the middle to lower ends of the [residential] market in recent years, but that is where we are now seeing [household] balance sheets coming under pressure.”
Adrian Goslett, regional director and CEO of RE/MAX Southern Africa, agrees house prices will come under pressure but says the group — which operates “mainly in the meat and potatoes market of South Africa which is the R800,000 to R1.8m price bracket” — is enjoying better sales now than before Covid hit.
Goslett says besides pent up demand due to Covid restrictions it appears that people are investing in homes as corporate SA adopts a hybrid model that allows for remote working.
The group reported R17.2bn in sales for the first six months of this year, 40% up on the first six months of 2019.
He says RE/MAX’s 2021 half-year period was a record for the group “by a country mile”, with R16.58bn in sales reported, and the 2022 figures were 4% higher.
The number of residential properties transferred to new owners in 2021
— IN NUMBERS: 277,056The number of residential properties transferred to new owners in 2021
Samuel Seeff, chairperson of Seeff Properties, says the residential market is “still very resilient”, with an uptick in activity in the R3m to R5m-plus price bands.
“That said, the overall transfer volume for 2022 versus 2021 is down by about 9%, but entirely expected given that 2021 was an extraordinary record year, boosted by the significant pent up demand which resulted from the 2020 Covid lockdown and Deeds Office closure periods,” says Seeff.
The group experienced two successive record years in 2020 and 2021 as the country began opening up after the initial hard lockdowns.
“Our year to date sales for 2022 still appear on track for yet another record year, despite the rate hikes,” he says.
The Western Cape and Garden Route continue to see strong demand. KwaZulu-Natal appears the weakest due to the floods and 2021 riots, while Gauteng prices remain under pressure and offer “excellent value”, he said.
Seeff says interest rates, even at current levels, are still “favourable” and “well below the 12% to 16% average of the past 38 years”.
“Although selling due to financial reasons will no doubt increase in view of the weaker financial outlook, we have not seen any significant uptick in distressed sales.
"There is still a fair balance in the reasons for selling, i.e. being financial, lifestyle (either upgrading or downgrading), semigration and emigration", he said.
Pam Golding Properties CEO Andrew Golding says after the lifting of Covid restrictions over the past two years the market experienced high demand and activity across the board, particularly in the price band below R3m.
Golding attributes this to “work-from-home and a desire for larger properties, an ongoing trend towards semigration, lifestyle changes including retirement, downscaling and financial factors”.
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