Advice and Opinion Research

Slowing economy is starting to bite into the residential property market

By: Homebid

The slowing economy is starting to bite into the residential property market with sales and transfers dropping 7.1% in the third quarter of 2015 compared to the previous quarter according to HomeBid, the nation-wide, low commission estate agency.

“We have tracked 71 101 transfers in the various deeds offices around South Africa for the third quarter of this year. The second quarter reflected 76 546 transfers. However, the good news is that average price levels countrywide have risen 1.3% for the quarter, which equates to an annualized 5.2% p.a increase in average home prices. The average home sold and transferred is now R1 188 243” says HomeBid adviser, property economist Neville Berkowitz.

HomeBid’s research reveals that 87% of all homes sold and transferred in the third quarter are through the four major deeds offices of Johannesburg, Pretoria, Cape Town and Pietermaritzburg, the latter being mainly greater Durban regional sales.

“Increasing urbanization will intensify this concentration of sales in the years to come”, adds Berkowitz.

Suburbs covered by the Johannesburg deeds office were the most active in terms of sales volumes with an increase of 4.7% in the third quarter of 2015 compared to the previous quarter.

The Pretoria deeds office, which incorporates the northern suburbs of Johannesburg and Midrand as well the Pretoria region, saw a 2% increase in sales activity.

The Cape Town deeds office, which also includes parts of the Eastern Cape as well as the greater Cape Town region, showed a sizeable fall off in sales activity of -18.6% while the Pietermaritzburg deeds office, reflecting the greater Durban region as well, saw a sizeable fall off in sales and transfers of homes of – 9.9%.

The sectional title market place fared far worse than the freehold title market place in the third quarter compared to the second quarter of the year. Sectional title sales and transfers were – 14.9% lower while freehold title sales and transfers dropped – 3.7 %.

The slowing economy is taking its toll at the employee level where second quarter 2015 labour statistics are showing net layoffs in manufacturing, transport, business services and construction, according to StatsSA.

“These employees are typically buying in the R250 000 – R2 million sectional title marketplace where affordability is already under pressure and a further interest rate increase is expected in November 2015,” says Berkowitz.

The slowing economy is yet to be felt meaningfully in the luxury and super luxury segments. For example, the R4 – 5million price level saw a massive jump of 68% in Johannesburg deeds office sales and transfers and 38% in the Johannesburg R10 million plus segment during the third quarter compared to the previous quarter.

“Intuitively we believe that these luxury and super luxury homes will soon also reflect a slowing sales pattern during the fourth quarter and through 2016 as belt tightening ensues. However those wealthy people who have taken their profits prior to the fall in the JSE prices from May 2015 will be hard pressed to invest them and with interest rates still relatively unattractive to serious investors, the luxury housing market may be the beneficiaries of some of these monies.

Conversely, wealthy people suffering from a fall in their JSE portfolios may be forced to sell their homes to pay off any borrowings they used to buy JSE stocks in the prolonged upswing since the late 2000s.

There is a meaningful supply of new homes being developed for the luxury and super luxury segments in the four major metropolitan areas of Johannesburg/Sandton, Midrand/Pretoria, Durban/ North Coast and the greater Cape Town region.

“With the new developments coming on stream I am concerned that if the current slowdown in sales in the general marketplace envelops the luxury and super luxury segments, then, as Warren Buffet aptly says, ‘You only see who is swimming naked when the tide goes out!’” says Berkowitz.