SA's housing market under pressure, warns S&P Global

Cape Town - Subdued economic growth, persistent very high unemployment and elevated consumer indebtedness do not bode well for the South African housing market in the near term, S&P Global said in a report published on Tuesday.

"This is especially if interest rates continue to rise, as our baseline scenario anticipates," it stated.

S&P Global Ratings projects muted nominal house price growth of 5.5% in 2017, which would imply stagnation of home prices in real terms. It forecasts nominal home price growth of 6.5% in 2018.

"We expect continued strong structural demand for better-quality housing from SA's young and growing population and rising urban middle class," said S&P Global Ratings' senior economist Tatiana Lysenko.

"Meanwhile, the softness in the construction sector is exacerbating the housing supply shortage in SA. This supply-demand imbalance should support prices in the medium-to-long term."
 
The report pointed out that a weak macroeconomic environment, still-high household indebtedness, and rising interest rates burden the South African housing market.

READ: Property experts weigh in on 2017 outlook

"Residential property prices stagnated in real terms in 2016, as above-target inflation eroded nominal price gains, and construction activity has been soft," explained Lysenko.

According to the report, home prices in SA have improved at the end of 2016 as financial conditions stabilised. It considers that a range of negative shocks that dragged down gross domestic product (GDP) growth in SA have run their course. These shocks include falling commodity prices and the severe drought.

"Nevertheless, longstanding structural constraints, such as a skills shortage and rigidities in labour and product markets, still hold back economic growth. Political tensions remain high, weighing on the confidence of domestic and foreign investors,” stated the report.

S&P Global expects subdued growth of 1.4% in SA in 2017 and 1.8% in 2018. It pointed out that this means that SA's real GDP growth will only move into positive territory in 2018 in per capita terms.