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Property Talk: What is the current property market cycle?

Property Talk: What is the current property market cycle?

Author: Andreas Wassenaar
Date: 2021-06-14

Is our residential property market demand currently peaking? The recently released FNB House Price Index growth figures show that annual house price appreciation slowed in May 2021 to 4. 1 % year on year from 4.6% in April.

The growth trend since the beginning of the year was on an upward trajectory from 3.9% in January to 4.6% in April. Average prices in the market represent many transactions and the growth trend of prices is, therefore, an excellent way to indicate the direction of a property market cycle.

For those astute property investors and especially developers who plan for years, the general trend in demand impacts heavily on decision ­making.

When you are risking your own money being able to get a handle on the predicted near term home price trend growth can be important. The last thing a developer wants to do is plan to deliver homes in a weakening market.

FNB is showing moderating house demand even though mortgage extension continues to grow and the loan to price amount has trended upwards meaning mortgage providers have been providing higher percentages of debt to the value of the property.

The low-interest-rate environment has achieved the result of fueling market demand and in most price segments the demand has ensured that transaction volumes have surged while pricing has remained relatively flat.

Sellers with unrealistic price expectations on their properties typically are unable to attract buyers while those priced within the tradable zone almost always secure a sale.

The structural factors within our economy that raise concerns for a sustained property market surge include employment growth. FNB report that the latest labour market data show that there are still 1.4 million fewer people employed compared to the same period last year, with company liquidations elevated and wage growth low.

GDP growth contracted - 3.2% in the first quarter of 2021, but this is an improvement on the -4.2%, - 6.2% and -17.8% contractions of the previous three quarters. None of us has experienced this level of GDP contraction over our professional lives.

When we consider the past 25 years even the global financial crisis of 20 09 did not translate into overall quarterly GDP contracting at more than -2.6%. The current contraction has therefore been far more severe and the recovery can be expected to take longer. Caution is therefore advised.

Seller's would be well­ advised to transact at the lower prices the market is dictating and buyers would be well advised to take advantage of the liquidity currently in the market and the willingness of most commercial banks in SA to provide mortgage finance