Paarl - Due to a vicious cycle in the economy, one could say there is currently little oxygen in the SA residential property market in general, according to Paul-Roux de Kock, analytics director for Lightstone.
Lightstone provides information, valuations and market intelligence on about 6.8 million of the 8 million properties in SA.
"On a national level, there are no real sparks flying in the SA residential property market," he said at a property industry conference held at the Val de Vie Estate outside Paarl on Thursday.
Lightstone’s forecast for 2016 is that nominal house-price inflation will top out at around 3.5%, resulting in real deflation of home values as the SA Reserve Bank (Sarb) battles to keep the consumer price index (CPI) within the 6% upper band.
"If we see a positive turnaround in the economy, the best-case scenario is that the drop will be subdued and the year will end off at around 4.6%. If we have to weather any more major economic storms, however, house-price growth could drop to 2.5% or even lower," said De Kock.
He explained that if one looks at the residential property and mortgage market in SA, gross domestic product (GDP) growth is steadily slowing and to make matters worse for the industry, inflation is increasing at the same time.
"The last remaining lever for the Sarb is, therefore, to increase interest rates," said De Kock. "Expect a raising rates cycle which some economists say could come even sooner than expected."
He pointed out that aspects like a decline in vehicle sales and building plans passed reflect the state asset buyers find themselves in. On top of that the under-valued rand plays a part as well.
"When Sarb increases interest rates, it takes money out of the pockets of asset buyers and that means it takes a bit of the property buying pool with it," explained De Kock.
High value proportion
As for property values, Johannesburg and Cape Town have similar value bands, but, although Johannesburg has a much higher percentage of properties valued over R3m, Cape Town has a much higher value proportion. This is due to more properties of R40m, R50m or even more being sold in Cape Town compared to in Johannesburg.
As for market activity, De Kock said that since 2008 the property market has made a slow recovery. Although it is in a cyclical movement, the market activity is still relatively flat. There is growth in activity, however, in higher value properties being traded, but here inflation could just be playing a part.
"Therefore, at a national level there are not really higher numbers traded but just higher values due to, for instance, inflation," he said.
One city that puts the rest to shame in his view, is Cape Town. The City of Cape Town’s residential property market witnessed an increase of 12.3% in total value transacting from 2015 to 2016. While housing markets in Johannesburg remain stable, Cape Town is showing much stronger growth than all other metros, he said.
Lightstone looked at where Gauteng residents are buying when they buy outside of their home province. The research has found that since 2010 there has been an upward trend of Gauteng residents buying properties in the Western Cape, and mostly in coastal suburbs. At the same time there has not been a real increase in Gauteng residents buying in KwaZulu-Natal and if they do, it is mostly as second properties.
Another trend picked up in the research shows that there are fewer speculators present in the property market at the moment.
"Yes, the residential property market is in a downturn like the rest of the economy, we cannot escape that. There will be no sudden property growth on a national level," he said.
"Therefore, it is very important to find where the hot spots are in the industry and location is the top defence in this regard. Consumers must research this aspect meticulously."
Fifty percent of residential properties are located in the Western Cape and Gauteng, accounting for more than two-thirds of the total residential market value. Sandton and Parkmore in Johannesburg, Green Point and Rondebosch in Cape Town, and Rua Vista and Monument Park in Tshwane – as well as La Lucia and Mount Edgecombe in eThekwini in KwaZulu-Natal – were among the high-value suburbs with strong capital growth last year.
According to Marius Marais of FNB Home Loans, the upward interest rate cycle expected would mean increased funding costs for the property market, pressure on credit behaviour, pressure on affordability and pressure on property activity and prices.