SA’s housing market forecast for 2018

It's expected that the residential property market will continue to maintain its resilience

Monday 26th of February 2018

With the economy expected to strengthen somewhat and interest rate hikes most likely delayed – if not reduced – the outlook for the housing market is more upbeat than has been the case of late. Just how much better will become increasingly apparent once there is greater clarity about the political landscape following the recent election of Cyril Ramaphosa as South Africa’s new President.

Dr Andrew Golding, Chief Executive of the Pam Golding Property Group, comments:

“It is expected that South Africa’s residential property market will continue to maintain its resilience, reflecting the ongoing healthy appetite for property investment – particularly in major metros and key hubs. While traditionally the residential property market in South Africa experiences a quieter period over the festive season, from a Pam Golding Properties perspective we began the year on a high note – with our Atlantic Seaboard office experiencing its busiest December trading period on record, partly due to renewed confidence in the market now that there is some political stability”.

Other positive factors currently evident include an uptick in sentiment in the Gauteng market, with heightened activity and interest from serious buyers across all price bands, including the luxury market above R10 million, and also within secure residential estates. Generally, show day attendance is up – a good indicator of confidence – and in some areas a ‘clean-out’ of properties is seeing agents now looking for stock. Our Gauteng region also reports that December 2017 sales exceeded those for December 2016 in both units and value.

The ever-popular Boland and Overberg region have witnessed significant activity, with a wine farm between Somerset West and Stellenbosch fetching R131 million in a recent sale. Along with two other properties, the sale makes a total of three wine farms in the region to sell for over R100 million each in recent months.

Dr Golding adds:

“The fact is there is a pent-up demand from a groundswell of aspirant buyers wanting to acquire a foothold in the property market, while others in the marketplace – both first-time buyers and existing homeowners – are seeking homes to buy or rent as career and lifestyle changes dictate a change in address. Another favourable indicator is that developers are continuing to bring new products to the marketplace across a range of price bands in response to the demand for residential property in key growth nodes in Cape Town, Johannesburg – including the ‘New North’ of Fourways, Pretoria East, the KwaZulu-Natal North Coast and also Port Elizabeth”.

In the major metros and economic hubs, it is evident that densification is a factor which will increasingly drive demand in the residential property market. Interestingly in Cape Town, in line with this trend, the Municipal by-laws were recently amended, thereby giving home owners the right to build a second dwelling on most properties, as long as certain criteria are met. In addition, the live, work, play, shop concept continues to gather momentum partly due to major cities’ increased traffic congestion, while the transition to ‘green’ energy and water-efficient homes will gain impetus, not only for reasons of sustainability and drought – as still evidenced in the Western Cape – but also due to the rising cost of utilities.

Dr Golding says other factors which will continue to fuel activity in the residential property market incorporate a number of ongoing trends. These include an increasing demand for sectional title properties in convenient locations close to the workplace and all amenities. This demand is coming largely from first-time buyers and those downscaling or seeking a more manageable, lock-up-and-go property, with reduced operating costs, to cater for a more flexible lifestyle.

“We also anticipate a continued demand for secure estate living, both freehold and sectional title, as well as homes catering for the ever-growing retirement market – those wishing to retain an active lifestyle and enjoy a range of amenities on site.”

Commenting further on the market, Sandra Gordon, Pam Golding Properties Senior Research & Market Analyst says: “When we review the latest Pam Golding Residential Property Index, we note that national house price inflation averaged 4.2% last year, down marginally from an average of 4.5% in 2016.

“While average house price growth for 2017 was slightly below the average annual consumer inflation rate of 5.3%, it is important to remember that this is the average growth in prices for the entire national housing market incorporating 6.5 million homes in various locations and of various sizes and types. As an immovable asset, housing markets are hyper-local and house price growth is determined to a large extent by the level of economic activity in the area, as well as migration trends, local housing availability and lifestyle trends. While there are overarching national trends, it is important to understand the dynamics of local housing markets, and hence the likely performance of house price inflation in any particular area”.

To illustrate this, consider that regional house price growth ranged from an annual average of 10.4%  in the Western Cape last year, to just 2.7% during the same period in Gauteng. Equally there is diverse performance across price bands – with homes valued at less than R1 million showing price growth of 5.8% last year while the top-end of the market (above R3 million) registered growth of just 1.9%. When combining these two factors, the strongest growth in house price inflation is experienced by homes valued at under R1 million in the Western Cape – still registering robust growth of 13.5% during the year as a whole. This serves to highlight the fact that the average performance of the national housing market does not reflect the realities of the housing markets many South African homeowners are experiencing. It also highlights the importance of understanding the trends in the national housing market when making decisions to sell or purchase a home.

The worsening drought situation in Cape Town is a major cause for concern and Richard Day, Pam Golding Properties National General Manager and Cape Regional Head, says:

“It’s too soon to say whether the water crisis will materially affect buyers’ decisions to buy in the Mother City. It all depends on the intensity and duration of the current situation, which, if effectively managed and contained for a few months will not impact the long-term desirability of living in Cape Town, but a prolonged water crisis would inevitably impact sentiment and could affect property prices until the situation normalises. However, there is no indication currently of any material trend for residents of the Western Cape evidencing signs of wanting to relocate permanently outside the Western Cape for reasons attributable mainly to the water crisis.”

Posted by Jean Scheltema