2018 started out looking positive for South Africa’s residential property market, but the year proved to be more challenging than many expected. According to Tony Clarke, MD of the Rawson Property Group, this disappointing performance can largely be attributed to the country’s ongoing political and economic challenges – a situation unlikely to see any real relief before elections in May 2019.
“2018 opened on a high note with the induction of Ramaphosa as president,” says Clarke, “but the subsequent uptick in sentiment was sadly short-lived. Since then, lack of clear direction on public policy, and controversial issues like land expropriation have all contributed to dampening consumer and investor confidence.”
The result, he says, has been a “deer in headlights” situation, with large numbers of property investors, prospective buyers and existing homeowners adopting a holding pattern while they wait to see what the future holds. This, together with 2018’s widespread cost escalations courtesy of VAT, fuel and fuel levy increases, has severely impacted market activity and suppressed house price growth.
“Year-on-year residential house price growth in 2018 has averaged at around 4.1%, nationally,” says Clarke. “That’s below CPI at 4.6%, which means prices are effectively in a marginal decline. Properties have also been taking longer to sell, spending around 17 weeks on market. That’s a common trend in a buyers’ market like the one we’ve experienced over the course of this year.”
According to Clarke, politics and the economy aren’t the only factors to blame for poor national house price growth during 2018, however. The severe drought in the Western Cape may also have influenced national trends – albeit less directly.
“Over the last decade or so, national property prices have been disproportionately affected by the Western Cape, because of trends like semigration,” he says. “Semigrating upcountry homeowners tend to push their asking prices a little higher to help cover the cost of pricier Cape Town properties, and that has a knock-on effect on the market. With fewer people moving down to the coast in the wake of the drought, that upward pressure on prices has all but fallen away.”
Not all residential market segments were badly affected by 2018’s challenging conditions, however. Some saw remarkably strong growth in the face of the general market decline. This, Clarke says, is largely due to evolving buyer priorities focusing demand on a few, key areas.
“Sectional title properties and security estates have definitely become the most popular property types with buyers, and have retained their value very well as a result,” he says. “Student accommodation and homes near business hubs are also highly sought-after and growing in value, as are retirement properties which are in pitifully short supply here in South Africa.”
In general, however, Clarke says property owners should prepare for continued slow growth into 2019 – at least until elections provide more clarity on where the country is heading.
“The good news is that interest rates are unlikely to rise again before the third quarter next year,” he says, “but that alone is not enough to inject new vigour into the property market. What we really need is a workable roadmap for economic recovery. Realistically, that’s not going to happen before the May elections, which means property market activity is unlikely to pick up until the second half of 2019.”
For homeowners and investors, this may be disappointing news, but Clarke says a turnaround – while admittedly not imminent – is inevitable.
“A cycle isn’t a cycle if it’s always on the upswing,” he says. “We’re still experiencing price correction after the last big property boom, but the huge demand for accommodation in South Africa, and our massive emerging middle class, will help us recover quickly once this current period of uncertainty is over.”
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