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Property Talk

Property Talk

Date: 2020-01-31

A new year is filled with fresh hopes and dreams and especially in the residential property market when many people make and act on decisions to move in the first quarter of the year. For those servicing this market a seasonal peak of buying activity is always expected in the first quarter of a new year.

The FNB review of the South African residential property market gives some excellent insight into the key drivers of our current market. Overall house prices grew by 3.5% year-on-year in December 2019 taking the annual average for 2019 to 3.6% from the 3.8% recorded in 2018. The five themes that shaped the property market performance in 2019 according to the FNB report were as follows:

1. Market activity was at the bottom end. The demand at the lower end was characterized by cash transactions and buy-to-let demand, which FNB estimated at 25% of all transactions for the lower tier. Home prices increased by 16.7% year-on-year for the bottom 20% of the price distribution, while prices contracted by -0.5% for the top 20%.

2. Constructive lending by banks and attractive house prices supported the market. Mortgage lending outpaced house price growth with the latest recorded figure of 5% (Nov 2019) being the highest growth recorded in a decade. The Loan-to-Value ratio of lending by banks has also increased to as high as 91.2% meaning that lenders are asking for smaller deposits from prospective buyers.

3. Holiday home buying rising in Durban. The national average shows that holiday home buying is currently at 2.5% of all transactions as of the 4th quarter of 2019, up a little from the low of 2.3% recorded in the 1st quarter of 2019 and below the average of 2.7% since 2007. FNB report that there is a migration of holiday home buying from Cape Town to Durban driven by the better value achieved.

4. Supply of new stock is adjusting lower. The surge of new supply that came on to the market in 2019 is expected to retreat as the pipeline of new residential units in the planning stage is lower. The declining stock will assist in stabilizing the market characterized by current oversupply.

5. Lower rental inflation across all major provinces. With new stock on the market and lower demand from prospective tenants, rental inflation rates have been forced downwards. Rental inflation in the Western Cape remains the highest at 6.6% but is trending downwards while Gauteng rental inflation is only at 1.8%

The outlook for the 2020 residential property market is that it will be characterized by similar house price growth as 2019, the supply of new stock should retreat and general GDP and income growth will determine the extent to which we see demand increasing. The current buyers market is therefore expected to continue for a period making it the ideal time to purchase a new home.