It’s taken longer than expected for rapidly rising interest rates and living costs to curb homebuyers’ enthusiasm. But the most recent data from industry players suggests that South Africa’s residential property market is starting to take strain — more in some regions than others.
Sales volumes and house price growth alike have slowed notably in recent months. That follows a two-year mini-boom in housing activity on the back of a sharp pandemic-induced drop in rates to near 50-year lows.
Mortgage originator ooba has seen home loan applications slump 25% in the second quarter (year on year). Application volumes are now down 30% from the multiyear high recorded by the company in the third quarter of 2021, just before the rate hiking cycle started.
Back then, the prime lending rate was at a historic low of 7%. The 10 consecutive rate increases announced by the South African Reserve Bank since then have pushed prime to 11.75%.
Seeff Property Group chair Samuel Seeff says sales volumes in some areas, most notably Gauteng, are now down about 40%-50% from their 2021/2022 highs.
“Even the resilient Cape Town market has declined by about 20% year on year in the first half of 2023,” he tells the FM.
The drop in buyer demand has already led to a slight dip in average house prices for South Africa as a whole — down 0.4% in the second quarter year on year, from R1,431,712 to R1,426,656, according to ooba.
The fall has been more pronounced among rate-sensitive first-time buyers, with ooba’s data pointing to a 2.6% decrease in average house prices in this segment over the past year — from R1,150,256 to R1,120,173.
House price growth and sales volumes are subdued around the country, but coastal areas have shown themselves to be more resilient
— What it means:
FNB’s housing index, which tracks price movements of its own mortgage book, paints a slightly more upbeat picture, with prices still in positive growth territory.
But the bank’s index also shows a deceleration trend, with growth slowing to 1.7% in June, down from 2.8% in January and less than half the 3.6% seen a year earlier.
Bar the second quarter of 2020, when the housing market shut down due to Covid restrictions, June’s 1.7% is the lowest price growth recorded by FNB since 2008/2009 when global markets were hit by the financial crisis.
Another FNB metric showing the extent to which the local housing market has run out of steam is the steady rise in the time it takes to sell the average house.
FNB estimates it took just over three months (85 days) to sell a house in the second quarter. That’s up from 55 days (less than two months) in the fourth quarter of 2021.
It must be said, though, that the second quarter’s 85-day lag is still well below the average 104 days recorded pre-pandemic, in 2019.
Still, FNB says 56% of properties listed for sale now take more than three months to sell, up from only 33% in the first quarter of 2022.
FNB senior economist Siphamandla Mkhwanazi has revised his house price forecast downwards for the next three years. He now expects average growth of no more than 1.8% for 2023 as a whole, down from his 2.1% estimate earlier this year.
Mkhwanazi has also trimmed his growth projections for 2024, from 1.7% to 1.1%, and for 2025, from 2.4% to 1.4%. That is well below the 4.2% achieved in 2021, and 3.5% in 2022. He cites weaker-than-expected GDP growth, rising unemployment, especially among the youth, and higher-for-longer rates as key reasons for his muted outlook.
He notes that higher inflation and debt costs as well as weak wage and income growth continue to erode affordability, particularly among lower-income groups.
“That has caused prospective buyers to delay their purchasing decisions and more sellers to reduce their asking prices to facilitate a sale,” he says.
“Tighter lending standards and sombre sentiment should also weigh on home-buying activity.”
What will no doubt be particularly disappointing to homeowners is that FNB expects rates to remain at current highs until at least mid-2024, with a decrease only likely in the second half of 2024.
In contrast to the country’s biggest metro, Joburg, Cape Town has an undersupply of homes available to buy, in part due to the rise of semigration
— Rhys Dyer
While housing activity has slowed across South Africa, on a regional basis Cape Town and coastal areas seem to be holding up better.
According to Lightstone Property data, Cape Town remains the best performer among South Africa’s six largest metros when it comes to house price growth.
The Mother City achieved average uplift of 3.7% in the first quarter. That’s down from 4.5% a year earlier but way ahead of Joburg’s 0.2% (1.9% in the first quarter 2022). It’s now the country’s worst performing city by a long shot.
Harcourts South Africa CEO Richard Gray says there is no doubt that Gauteng’s housing market — Joburg in particular — is struggling amid negative investor sentiment fuelled by perceptions of failing infrastructure.
The R3m-plus market is especially lacklustre, with an oversupply of stock. He says sellers have seemingly not realised that the market has shifted and now favours buyers. As a result, too many higher-end sellers are overpricing their properties.
Where price growth of inland properties as a whole has slowed from 4.4% to 2.2% over the year, it’s hardly dipped in coastal areas. Lightstone’s coastal index, which tracks repeat sales of properties located in areas within 500m of the coastline, still notched up an inflation-beating 7.3% in the first quarter, only marginally down from 7.4% a year earlier.
For Lightstone head of digital Hayley Ivins-Downes, the relative outperformance of the Western Cape has been supported by ongoing semigration and the purchase of second homes in coastal towns.
It’s a view shared by ooba CEO Rhys Dyer. In June, ooba saw a surge in home loan applications for investment purchases (second homes and buy-to-let units) in the Western Cape.
Dyer says applications from buyers looking to invest in second homes or buy-to-let properties accounted for 30% of total home loan applications in that month, up from about 17% a year earlier and well ahead of the 7% for South Africa as a whole.
Investment buying is particularly buoyant in Cape Town. Dyer tells the FM savvy investors are clearly cashing in on the Mother City’s rental “craze”, referring to Cape Town’s 1.55% rental vacancy rate. That’s the lowest it’s been since 2016, according to credit bureau TPN’s latest vacancy survey.
Dyer notes that locals, semigrants and foreigners alike are competing for a small pool of available rental stock and are attracted by the city’s “high levels of municipal service delivery, pleasant climate and relative safety”.
“In contrast to the country’s biggest metro, Joburg, Cape Town has an undersupply of homes available to buy, in part due to the rise of semigration,” he says.
“This, combined with Cape Town’s higher house prices, has led to a huge spike in rental demand, particularly in sought-after areas like the city bowl, Atlantic seaboard, and southern suburbs.”
Notwithstanding the outperformance of the Western Cape and Cape Town in particular, Dyer says housing activity for South Africa as a whole is likely to remain subdued “until there is a shift to an interest-rate-cutting cycle”.
Ivins-Downes agrees, warning that the full effect of rising rates is yet to be felt. “The months ahead will tell how the story unfolds,” she says.
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