Despite hopefully being near the peak of the interest rate hiking cycle, SA’s residential property housing market remains supported by underlying fundamentals – most notably the fact that overall demand continues to exceed supply. This is perhaps particularly evident in the Western Cape, which is characterised by high demand and stock shortages, while Johannesburg has stock available with less demand – yet both markets function and demonstrate ongoing resilience
Bearing in mind that while the interest rate has recently been at historic 50-year lows and is now just above pre-Covid-19 levels, it is hoped that we are reaching the end of the increases, as the interest rate environment is understandably the single biggest influencing factor in the market. And while one cannot generalise regarding SA’s residential property market, as it is comprises vastly differing sectors and neighbourhoods, affected by differing dynamics and trends, there are still pockets of excellence.
While nothing like the global boom, SA’s housing market also experienced a post-pandemic boom in 2021 and 2022 in both volume (units sold) and value (see chart below). Locally, the increase in prices was relatively muted, and given several years of single digit price increases (and decreases from year-earlier levels in real terms) SA’s housing market overall is unlikely to be overvalued and in bubble territory – though still vulnerable, to a degree, to a slowdown in activity.
On balance, though the local housing market is facing a number of headwinds (both global and local) it is not facing the risks of a significant price correction as seen in other countries across the globe. For example, the Union Bank of Switzerland (UBS) recently warned that numerous cities in America, Europe and Asia are now in overvalued territory after double digit price increases since mid-2021, with many now facing the serious risk of price corrections.
According to Lightstone, total residential unit sales in SA declined by -0.35% in H1 2022 from year-earlier levels, while the volume of bonded sales dropped by -8.1%. In contrast, the value of sales rose by 2.0% (+R3bn).
While the total number of homes sold during H1 2022 was marginally lower than during the same period in 2021, it remained elevated (+13.1%) compared to the pre-Covid period during 2019. In contrast, the value of homes sold during Q1 2022 was higher than the same period in 2021 – presumably reflecting the fact that the second wave of home buying triggered by the pandemic was mainly fuelled by more affluent homeowners taking advantage of the low interest rate environment to purchase larger, freehold homes with more space (for those now working from home) or to semigrate to a coastal region.
From a Pam Golding Properties perspective, sales turnover for the year to end-October 2022 is consistent with the previous year with increased turnover of 32.8% in the price band above R6 million, while residences sold in the R3m to R6m price band increased by 29.3% in turnover, and total transactions up to R3m increased in sales value by 37.9%.
INCREASED DEMAND FOR LUXURY HOMES
As far as the luxury end of the market is concerned, we have seen an increased demand for high-end homes in excess of R20 million and upwards of R30m to R80m and beyond. These include residences sold in areas such as Sandton, Dainfern and other northern suburbs of Johannesburg, Steyn City in Fourways, and in Cape Town — Clifton, the V&A Waterfront, Bakoven, Camps Bay, Bantry Bay and Mouille Point on the renowned Atlantic seaboard, and Constantia and Bishopscourt in Cape Town’s southern suburbs. This high-end segment of the market is characterised by buyers both South African-based and international who have decided to invest in iconic, lifestyle properties – many of whom have elected to live or spend more time in the Cape. The entire Atlantic seaboard has experienced a surge in confidence and top-end buyer activity. Coupled with this, in Gauteng, we are experiencing a great deal of interest in top golf estates such as Blair Atholl, Dainfern, Eagle Canyon, Ebotse and Serengeti.
Most international buyers mention that the value offered by our properties is significant and the lifestyle compelling – ranking with the best on offer elsewhere in the world, while this segment of the market remains unaffected by interest rate hikes. Buyers with meaningful resources are also keen to diversify their investments while simultaneously benefiting from living in properties providing outstanding views, lifestyle and amenities.
The number of international buyers in the last 12 months comprises 4% of our total buyers purchasing existing homes, with an average price of R5.85 million. Our international buyers are from numerous countries spread across the globe, with the top 10 being Germany, the UK, Zimbabwe, USA, the Netherlands, Switzerland, Botswana, France, Nigeria and Congo.
According to an FNB Estate Agent Survey, while nearly 6% of sales across the SA housing market were to foreign buyers during the initial stages of the pandemic (H1 2020), this has eased to less than 3% during the first half of 2022.
Also according to FNB, the percentage of those buyers who originated from the African continent soared to 40% in Q3 2020 but has since eased – averaging 14.5% during the first half of 2022.
FACTORS UNDERPINNING SA HOUSING MARKET
A number of factors continue to underpin the local housing market:
- Banks continue to compete for market share, ensuring that lending conditions remain supportive, particularly low/zero deposits and competitively priced home loans, while
- Demographic underpinnings are provided by a young population profile and rapid growth in the number of households
- Due to the rising cost of fuel and living, with remote working being phased out in some instances, housing market activity is being boosted by the need to live closer to work, school and amenities
- People are still buying, selling and relocating for all the usual reasons, most notably changing lifestyles
- Rising interest rates has seen renewed demand for rental properties, prompting a renewed demand for buy to rent and/or investment homes.
