Homeowners and residential property investors will no doubt be pleased to see the back of 2019. Sadly, few if any South Africans have made money on bricks and mortar this year.
Those trying to sell properties in upper-income suburbs are experiencing particularly tough conditions as the number of buyers with more than R3m to splurge on a house has dwindled to multiyear lows.
Anecdotal evidence suggests that you may have to wait a year or more to offload a standalone full-title house in an unsecured neighbourhood if your property is in the R5m-plus bracket — especially if you’re reluctant to drop your asking price.
Super-rich suburbs, where homes typically come with price tags in the double-digit millions, are taking the most pain.
"The R10m-plus market is practically dead compared to 2016," says Samuel Seeff, chair of the Seeff Property Group.
He says there have been almost no sales above R50m on Cape Town’s swish Atlantic seaboard this year, arguably Africa’s most expensive stretch of residential real estate. That compares with several R70m-plus sales last year, a number of Clifton sales of between R90m and R120m in 2017, and the record, a staggering R290m paid for a palatial seven-bedroom house in Bantry Bay in 2016.
The most expensive house sold by Seeff this year, a property in the Atlantic seaboard’s wind-free suburb of Fresnaye, fetched a relatively modest R28m. A far cry from 2017, when the group’s highest sale price was R80m, for a seafront apartment in neighbouring Bantry Bay.
Joburg’s posh suburbs have had a similar slump in demand. Seeff says that so far this year there have been only two sales above R20m — compared with two or three a month in 2016 and 2017.
Seeff ascribes the slide in big-ticket activity partly to a decline in interest from offshore buyers. "We might actually have more foreign sellers than buyers on the Atlantic seaboard for the first time," he says.
Stalling luxury home sales, especially in coastal areas, appear to be in line with a global slump in demand for second homes. The world’s elite, it seems, are showing a preference for investments other than property.
Seeff reckons Airbnb, which has made it easy for the wealthy to rent a holiday pad in any destination that takes their fancy, has played a role. "So you don’t have to carry the responsibility of homeownership or the costs associated with a second property."
Dogon Group Properties CEO Denise Dogon, who clinched the R290m Bantry Bay deal with a German couple in 2016, confirms there has been a noticeable downturn in deals in the luxury market.
Nevertheless, her group has managed to sell five properties for more than R20m this year. Among them is a "modernist villa" in Higgovale in Cape Town’s City Bowl, which the group sold to a foreign buyer for R85m last month.
This is believed to be the highest price fetched for a residential property in SA so far this year, and a record for the City Bowl. Dogon is tight-lipped about the identity of the owner, saying only that he plans to live in the house permanently.
Certainly, it’s an impressive house. A concrete structure designed by Antonio Zaninovic, it’s situated high up in Glen Crescent and straddles the largest residential erf — 5,237m² — in the City Bowl. The house, which has breathtaking ocean and city views, is set among indigenous trees. It has two kitchens — one in the front of the house and one in the back — and several "green" amenities such as solar power and rainwater tanks. It also has a guest cottage, a 12.5m heated lap pool, a six-person Jacuzzi, a gym and a "man cave".
However, it’s worth noting that the Higgovale house was on the market for R120m. So the buyer got it for a discount of nearly 30% on the asking price, which seems to have been the deciding factor.
Pam Golding Properties CEO Andrew Golding says it’s no longer unusual for high-end sales to be concluded at up to 50% below asking price. "Upper-end buyers have become extremely price sensitive. They are opportunistic and will only commit if they can get a bargain," he says.
Golding cites the recent example of a Bantry Bay property that was on the market for R26m but eventually sold for R12m. He believes serious sellers will have to adjust their asking prices downward if they want to find buyers. "The reality is that most sellers still believe that their properties are worth at least 25% more than actual market value," says Golding.
But it’s not only posh suburbs where sales have slumped this year. Middle-income buyers seem equally hesitant to commit to what is probably the biggest investment they’ll make in their lives.
A flat economy, rising unemployment, the risk of further rating downgrades and renewed load-shedding have made many would-be homebuyers think twice.
Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, says general homebuyer confidence is at a record low, leading to a drop in overall transaction volumes.
Deeds office data shows the monthly average number of residential properties sold nationally across all price categories this year is about 23,500. That’s 11% lower than 2018 and 16% below the 27,800 sales a month reached during the last mini-boom, in 2016 and 2017.
More worrying is that current transaction volumes are only slightly ahead of the average 22,500 units sold a month in 2009 and 2010 when the SA housing market hit rock bottom following the global financial crisis and subsequent recession.
House price growth is also taking strain.
FNB economist Siphamandla Mkhwanazi expects national house price growth to settle at 3.6% for 2019 as a whole — the lowest growth achieved in eight years (see graph). It will also be the fourth consecutive year that house prices have declined in real terms (taking inflation into account).
If it sounds horrific, it’s not all doom and gloom. The low-to midrange market, for houses between R700,000 and R3m, is still fairly buoyant. Experts say demand in this segment has been supported largely by a surge in first-time buyers.
The latest figures from mortgage originator ooba show that new entrants to the market, as a percentage of total mortgage lending, recently surpassed 50% for the first time since late 2016.
The reason for the surge seems to be that banks are pitching more aggressively for market share by offering more lenient terms, including loan-to-value ratios of 100% or more.
FNB figures confirm that mortgage lending is on the rise.
In fact, growth in mortgage advances has accelerated to more than 4% this year, outpacing average house price growth for the first time since 2011.
Adrian Goslett, CEO of RE/MAX of Southern Africa, believes sales in the low-to midrange market are also being driven by the downsizing trend, as homeowners opt for properties that require lower maintenance and running costs.
"We have seen a continued move towards smaller properties in secure environments. Larger homes are taking considerably longer to sell than in the past," says Goslett.
Optimistically, most experts believe that 2020 could be the start of a slow recovery in the market. Geffen is seeing "glimmers of hope" and expects trading conditions to improve over the coming months as the banks offer more attractive lending conditions, while prices are "lower than they have been in many years".
The Lew Geffen Sotheby’s International Realty group has already seen an increase in interest in wealthier suburbs, as lower prices attract lower-and middle-income buyers (first-time homeowners and buy-to-let investors in particular).
It’s a buyer’s market for housing at the moment, especially in the higher price brackets — and it’s likely to remain so for a while
— What it means
For instance, Geffen says, price adjustments on the Atlantic seaboard mean that for the first time in five years it is again possible to bag an apartment for less than R2m. This opens the area to a wider spectrum of buyers.
Mkhwanazi also expects a rise in sales, which should lift average house price growth slightly to 3.8% next year from 3.6%, as the overhang of stock is mopped up.
"We are seeing a narrowing of the demand-supply gap, driven mainly by easier mortgage lending requirements as well as intensified bargain hunting."
Golding is somewhat more cautious. He acknowledges there are signs that the housing market is beginning to stabilise. But he notes SA still faces many headwinds, among them concern about Eskom and SAA, and continued pressure on household finances. A full-fledged recovery, he says, is unlikely before SA’s economic growth prospects improve.
And that seems some years away. Moody’s last month slashed SA’s growth outlook for 2020 from an already dismal 1.5% to a mere 1%. This means you’d be brave to bet on a housing market recovery next year.
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