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Property prediction for the fourth quarter

Property prediction for the fourth quarter

Author: Andreas Wassenaar
Date: 2021-08-25

Where is our property market heading as move towards the fourth quarter of 2021? FNB Property Strategist John Loos recently provided a bespoke talk to the Seeff Property group and provided clear analysis and predictions. Herewith are some of the key insights.

The household debt service ratio - all the interest paid on the debt of South African households as a percentage of disposable income is currently at a low level of 7,7%, down from 13,9% in2008 during the global financial crisis. The consistent and dramatic interest rate cutting by the SARB has cushioned South Africans from a far more severe recession than occurred in 2009. This benefit will however not continue as the FNB Market Activity indicators, which bounced back after lock-down, show a decline starting, which can be expected to continue. Similarly, the surge in mortgage loans granted after lockdown will not continue and we have already seen a slowing in the growth rate of mortgage extensions.

The average time a property is on the market has reduced significantly from 17 .6 weeks in 2018 to 8 weeks currently. A balanced market would be around 12-13 weeks on the market before selling, indicating the current strong demand experienced. These figures are skewed towards the lower end of the market and do not reflect our typical Zimbali price point.

Overall the June FNB House Price index currently shows growth of 3 ,7% which is lower than the previous two months of 4,4% in May and 4,6% in April, indicating a slowing of demand. As a comparison, the US housing market is showing a stunning 14% growth in house prices. With low interest rates, this becomes a speculators paradise and inevitably leads to a housing bubble and eventual crash.

In SA the Buy-To-Let stats are relatively low at 6% of houses being sold to let. The peak was at over 25% in 2004. This indicates very little speculative property buying in SA. Rental rates have also weakened since lock-down making returns to landlords lower and less attractive.

Our SA real GDP growth is currently in a stagnation phase of a super-cycle when we consider 5-year annual averages. This has been evident since 2009. These super-cycle stagnation phases tend to lead to major political changes and could be the case for SA in the future. Either from within the ruling party or externally. This is a mega-trend that is starting to play itself out in the civil unrest and political instability we are seeing.

The financial pressure households are under can be seen in the mortgage accounts that are more than 90 days in arrears. These have increased from 3 .11 % in 2016 to 4.26% currently. In addition, the financial pressure is seen in the reasons why people are selling. Selling due to financial pressure as measured by FNB has increased from 11 % in 2016 to 21 % of all sellers currently. What has however assisted buyers is the higher loan to value mortgage approvals and the interest rate concessions provided off already lower rates. The availability and cost of finance, being far lower, has therefore supported our residential market.

For our immediate future, we see a stable property market without speculative buying or selling. The large gated estates will benefit at the expense of open suburbs. The rental market will remain under pressure until employment figures improve. Price growth will slow and remain flat.