Positive outlook for SA's housing market
Category Housing Market
The outlook for South Africa's housing market is looking increasingly optimistic with a number of positive indicators evident and early signs of sustainable growth in house prices and market activity already starting to emerge, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
READ: Five property investment strategies for the novice investors
Dr Golding says: "Repeated petrol price cuts, a seemingly imminent interest rate cut, improved confidence and the continued absence of loadshedding augur well for a continued, steady recovery in the housing market. We have seen both sellers and buyers, including investors, who had previously been sitting on the fence in the lead-up to the election, move forward and commit to property transactions, demonstrating that as long as there is stability, sentiment - which is a key driver of the residential property market - tends to improve.
"Encouragingly, headline consumer inflation decelerated to 4.6% in July from 5.1% in June, much lower than forecast. Overall price pressures have been easing for some time now, reinforcing expectations that the Reserve Bank will cut interest rates by at least 50bps and possibly even 75bps before year-end, with the first cut anticipated in September (2024)."
According to the Pam Golding Residential Property Index, national house price inflation continues to rebound, rising to +4.7% in July (2024) - a level last seen in February 2022, having risen steadily from a low of +2.4% in Q3 2023.
The Index reports that, contributing to the national recovery, house price inflation (HPI) in the two lower price bands below R1 million and R2 million, continued to accelerate in July 2024, rising to +8.7% and +3.4% respectively. Interestingly, while sectional title HPI is experiencing a robust recovery, rising to +3.6% in July, a data revision reveals that freehold HPI also strengthened last month, with growth of +4.1% marginally outstripping sectional title house price inflation.
Dr Golding says: "While the Western Cape remains the standout performer, we have also already seen increasing activity and interest this year and during recent months in various other key metropolitan hubs and sought-after nodes around the country across all sectors, including but not limited to the high-end of the residential market.
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"All major metro markets are showing signs of recovery, with Cape Town enjoying the strongest growth during the year to date (+2.9%), while national housing market activity has normalised and shown tentative signs of recovery in Q2 2024 as purchasers continue to buy and sell for all the usual reasons.
"Another positive is the strong growth in investment demand since the pandemic, but particularly over the past 18 months, to levels last seen in 2009.
"At a regional level, the recovery is being partly driven by a turnaround in the Gauteng and KwaZulu-Natal regional markets. In terms of house price inflation, the average purchase price in both Johannesburg and Tshwane has strengthened in recent months, suggesting that a return to positive territory - compared to year-earlier levels - is likely later this year. There does appear to be a positive turn in the Johannesburg residential property market generally, with increased buyer enquiries, and increased attendance at our exclusive previews and on show days. This includes increased interest at the top end of the market.
"Activity in the areas north of Durban is also rebounding and we have already seen an uptick in interest as the market anticipates interest rate cuts. La Lucia and uMhlanga remain sought-after areas, particularly the residential estates. We also anticipate more movement along the uMhlanga beachfront where investors can enjoy good returns, and are also expecting uMdloti to have a good run as this is an ideal market for Johannesburg business people seeking to own property rather than renting when they travel to KZN.
Uptick in luxury market
"The luxury end of the market has seen remarkable strength and significant reduction in stock levels, which is driving a shortage of stock and in turn placing pressure on pricing. Confidence has returned to the property market in this segment as it is driven by positive sentiment in respect of the improved financial conditions, local stock markets and stable government."
Dr Golding says in the Cape, there are significant stock shortages in the luxury market and pressure is building in pricing due to limited stock. In the high end or R20 million plus bracket of the market, Pam Golding Properties has concluded some notable sales on the Atlantic Seaboard including a house in Clifton which sold to a Gauteng-based businessman for R66 million; a house in Camps Bay which sold for R33.8 million to a Gauteng-based company; and an apartment in Mouille Point which sold for R27 million to a local buyer from the Western Cape. Adds Dr Golding: "In sought-after Constantia Upper in Cape Town's Southern Suburbs, we have concluded notable sales of homes for R54 million, R45.5 million and R26 million, among others.
"Meanwhile in the Boland and Overberg regions we have successfully concluded individual sales of homes for R20 million plus - notably including Somerset West, while areas such as Paarl, Hermanus and Durbanville remain popular. Set to open in 2027 for domestic and international flights, the planned redevelopment and expansion of the Cape Winelands Airport into an international commercial airport are significant for this region, while road infrastructure upgrades and new links, including the extension of the R300 from the N1 to the urban edge north of Wellington Road in Durbanville, will form a ring road around the Cape metropole and accommodate increasing traffic volumes."
READ: Becoming a property mogul in South Africa
Craig Mott, Business Development Manager for the Rawson Property Group, also shares the top 4 techniques used to build these high-performance portfolios that deliver mogul-worthy returns.
Don't overlook an opportunity
"The best property investors keep a constant finger on the pulse of the property market," says Mott. "They're constantly on the lookout for optimal conditions and aren't afraid to leap when an opportunity presents itself."
Currently, Mott says the market is ideally positioned for portfolio expansion, with excellent lending rates and a wide variety of stock available.
"We're seeing a lot of savvy investors using this time to fill gaps in their portfolios and implement strategic expansion strategies," he says.
Build strategic partnerships
Becoming a property investment expert doesn't happen overnight. That's why most successful investors have a property professional on their team.
"Building a relationship with an experienced real estate and/or rental agent opens a lot of doors for you as an investor," says Mott. "Not only can you get early access to prime, as-yet-unlisted properties, you also get up-to-the-minute advice on the latest investment best practices, legislative updates and property trends."
Understand what success looks like
Bigger isn't always better when it comes to property investment. According to Mott, the key metric to look out for is not overall portfolio value, but rather whether your total returns equal or exceed those of equivalent monetary investment funds.
"If, for argument's sake, the same money would have performed better in a money market - before capital appreciation - you can't regard that investment as being successful," says Mott. "Of course, property investment is a long-term venture, so don't be overly swayed by individual properties' short-term performance. At the same time, don't put all your eggs in the capital appreciation basket - investment properties shouldn't need to be sold before they deliver profits."
Never take performance for granted
Done right, Mott says property can dramatically outperform almost any other asset class. If it's not living up to its full potential, it's time to update your strategy.
"There are always going to be properties that don't perform as expected, and these can drag the overall returns from a portfolio down," he says. "Don't fall into the trap of hanging on to this 'dead wood'. The most successful investors do regular checks of each and every property's performance. Those that consistently deliver below expectations, and cannot easily be remedied, should be sold to increase cash flow or finance more promising new investments."
READ: A seven-step novice guide to savvy real estate investing
Green shoots in first-time buyer market
Dr Golding says: "While the lower end of the market, including first-time home buyers, is particularly sensitive to the higher interest rates currently applicable, the increases in the cost of living, and buyer affordability, green shoots are appearing with confidence that the interest rates will soon start decreasing, and the banks remain supportive with a competitive average weighted concession at -0.56% and a record national loan-to-value ratio of 93.7% last month (July).
Outlook to 2025
Looking ahead, Dr Golding says on balance, there are growing expectations that the GDP growth rate in 2025 may well surprise on the upside - which will underpin the housing market.
"The lower price bands have been the most resilient during the slowdown, so it would seem likely that the higher price bands perform better going into the recovery - in part because improved confidence, lower interest rates and stronger growth will see less financial pressure on homeowners to downscale and may see people who were renting (possibly as the result of relocating) commit to purchasing a home.
"More efficient local governments - resulting from the GNU - could trigger recoveries in housing markets which have previously been hard hit by poor service delivery. Johannesburg's housing market in particular comes to mind, which could possibly result in a slowdown in the current semigration trend to the Western Cape.
"We anticipate that activity will increase towards year-end as the anticipated rate cuts materialise, boosting market sentiment in general, which will underpin the emerging recovery in house price inflation."
https://www.property24.com/articles/positive-outlook-for-sas-housing-market/32347
Author: Property24