Real estate market will remain resilient despite economic outlook: South Africa

The rest of 2022 will be difficult for consumers as the interest rate continues to rise and they struggle to cover household expenses. According to Antonie Goosen, director and founder of Meridian Realty, however, there will be resilience in the middle market for the real estate sector and not all current data is negative.

Antonie Goosen, Director and Founder of Meridian Realty

“Some of the figures cited by the Monetary Policy Committee (MPC) show some positivity later on, but for now we will have to manage the higher rates. The increase in bond repayments could increase the pressure on households “Some may resort to selling their homes due to unaffordable bond repayments. This will be seen primarily in markets where households have less disposable income,” says Goosen.

He says the latest TransUnion Consumer Pulse study for the second quarter of this year showed that 56% of consumers said they were likely to default on at least one of their bills and loans over the next three months. . More than half of households surveyed (52%) said they would have to cut back on discretionary spending due to continued inflationary pressure.

“We all know that the rest of this year will be difficult for many South Africans, however, the resilience shown in the middle market will hopefully compensate to some extent for property professionals looking to maintain the stability of their businesses. In the middle to upper segments, shopping may continue in areas outside of the central business districts. It’s important, however, that any good agent works within a homebuyer’s budget and ethically ensures they don’t encourage them to overextend themselves,” Goosen says.

GDP growth

He says looking back, the economy contracted -6.4% in 2020. Gross domestic product (GDP) growth then slowed to 4.9% in 2021 according to National Treasury and Stats HER. More recently, according to Stats SA, GDP grew by 1.9% in the first quarter of 2022, which represents a second consecutive quarter of upward growth.

“The size of the economy in the first quarter reached pre-pandemic levels, with real GDP slightly higher than it was before the Covid-19 pandemic. This is a bright spot for Africa of the South,” says Goosen.

“Despite the headwinds weighing on the global economy, the MPC expects the South African economy to grow by 2%, revised up from 1.7%. He noted in his statement that output growth in the first quarter of this year surprised on the upside at 1.9%, stronger than the 0.9% expected at the previous meeting.

“Trading Economics indicates that thanks to GDP growth in 1Q22, eight out of ten activities recorded growth, notably manufacturing (4.9% against 2.4% in Q4); trade, restaurants and accommodation ( 3.1% vs. 3.9%); finance, real estate and business services (1.7% vs. -0.7%) and transport, storage and communication (1.8% vs. 2.9%).

“From these numbers, we can see that many industries and real estate in particular are still in a better position than in 4Q21,” Goosen says.

Future Strain

He says second quarter figures are not yet known, but according to BankservAfrica’s Economic Transactions Index (BETI), a robust early economic scorecard for South Africa in terms of economic growth trends, all signs point to the economy moderating in June (albeit 5.3% more than the previous year) thanks to growth of 9.4% in May 2022.
This is seen as a sign of future strain on the economy, although the report says there is still economic growth on the cards for South Africa in the second quarter of 2022.

According to him, the FNB real estate barometer for July indicates that “the evolution of housing needs and the intensification of competition between lenders should continue to support activity”. Goosen agrees and says it’s not all doom and gloom, estate agents just have to adapt to the changing demand that has arisen due to those looking to migrate and the competition between those funding the home loans offering relatively attractive financing for potential owners.

The average house price is expected to fall

Goosen maintains that “in our experience, we have seen an increase in sales along the Garden Route in homes with three bedrooms and above. This is because an average family of four (requiring three bedrooms) is looking to be half-separate and in turn needs space to work from home (fourth room for a study or office). This trend continues. In addition, the average house price is still higher than it was at the same time last year. I expect this to drop in the coming months.

The FNB real estate barometer is in line with Goosen’s expectations indicating that price increases may have slowed and time on the market may have lengthened across the board, but regions like the Western and Eastern Cape still have the shortest time on market, below the average of 13 weeks, and mid-priced homes between R1.6m and R2.6m spend around eight weeks on the market (up from the previous six weeks).

Goosen says sales in the Eastern Cape and Western Cape are in the upper segments of the market and are mainly due to the out-migration and market recovery we saw in the previous quarter. It also assigns less time in the market due to the strength of the middle market at the moment.

Inflationary rise

Following the global trend of rising inflation, South Africa has experienced a rapid rise in inflation, which has put pressure on household disposable income, with the CPI at an all-time high in 13 years. Goosen says our GDP continued to recover in the first quarter, with many sectors, including real estate, returning to pre-pandemic levels. He goes on to say that the Q2 and Q3 figures will differ as the delayed impact of the war in Ukraine, the KZN floods and the intense load shedding the country has just experienced come into focus.

He says energy constraints may cause the mid- to high-end market to seek access bonds to take their homes off the grid, adding to household debt. This can be a necessity for those running home-based businesses where being offline just isn’t an option.

“South Africans are not alone, the world is experiencing slow growth and rapid inflation. Industries must seek innovation and collaboration to keep abreast of a changing and moderate marketplace. Properties need to be valued and positioned correctly and some may need to boast off-the-grid features or attractive ‘out of town’ workplaces to attract potential buyers,” Goosen concludes.

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Penny D. Jackson