As 2023 hurtles to a close, all eyes are turning to what’s in store for 2024. The Rawson Property Group’s sales, rentals, commercial and finance specialists share their analyses of this year’s key trends and events and explore the most likely shifts to occur in 2024.
Residential Property Sales
“Residential sales have been under a bit of pressure for some time now, largely due to the rapid interest rate rise and increasing cost of living,” says David Jacobs, Gauteng Regional Sales Manager for the Rawson Property Group. The effects of this pressure started becoming more noticeable from around March/April 2023. “We started seeing a noticeable drop in buyer demand, an increase in the average time a property stays on the market, and an uptick in distressed property sales,” Jacobs says. “It was very clear that a lot of buyers who had bought at their full domestic purse capacity - when interest rates were lower - were finding their financial obligations unsustainable in current conditions.” Trends amongst those buyers still active on the market also shifted from upscaling to downscaling, as lifestyle affordability took centre stage.
Jacobs says that this cost-consciousness is unlikely to change dramatically in 2024, and buyers will remain extremely price sensitive. However, stabilising interest rates and inflation could unlock a pent-up wave of buyer activity with positive results for property price growth in the mid- to long-term. And, as is the case currently, sellers with properties priced correctly in the relevant market conditions will continue to conclude successful transactions in completely reasonable timeframes.
“I think there are a lot of buyers who have put off their property purchases while they wait to see what direction the market and economy is headed in,” says Tony Clarke, Managing Director of the Rawson Property Group. “If the interest rates and inflation remain stable – or better yet, decline – in 2024, I think we could see a flood of pent-up demand hitting the market from around the second quarter. This won’t have an immediate effect on property price growth, but it will most definitely relieve some of the pressure on sellers who may have had a rather stressful time of things.”
Residential Property Rentals
The rental market definitely had a slightly easier time in 2023, with tenant payment behaviour showing notable improvement over the course of the year. According to Jacqui Savage, National Rentals Manager for the Rawson Property Group, it’s an extremely positive sign that tenants are successfully handling the increased pressure on their household budgets. According to credit bureau TPN’s most recent survey, Rental escalations also improved in 2023, albeit modestly, climbing from 4.8% in Q2 to 4.84% in Q3.
“Higher rentals have been moderated by slow capital growth, though, thanks to subdued house price inflation,” says Savage. “Despite this, national average rental yields remain above inflation and increasing, with sectional title property enjoying stronger performance than freehold at present.”
As interest rates and inflation start to stabilise, Savage says pressure on tenants should begin to ease. “Our Rawson rentals agents are already seeing more willingness among tenants to negotiate rental escalations, which should contribute to healthier growth in 2024,” she says. “That said, market-related pricing is still going to be essential. I’d highly recommend landlords work with an experienced rental agent to list their properties according to a professional rental valuation, and avoid overshooting the mark on rental escalations.”
Commercial Property
“2023 has been a tough year for commercial property, there’s no skirting around it,” says Craig Mott, Head of Business Growth for the Rawson Property Group. “Between poor economic growth, loadshedding, elevated interest rates, rising operating costs, poor municipal service delivery and a global economic slump, it’s just a really tough time to be a business in South Africa.” Of the three main commercial property sectors (office, retail and industrial) Mott says the office market has struggled the most. “There is still a significant oversupply creating high vacancy rates,” he says. “These have begun to show early signs of recovery as more workers return to office – possibly driven by load shedding – but there’s definitely still a long way to go.” Mott says the office vacancy rate recovery has been most pronounced in Cape Town – a trend he expects to see continue into next year. However, he believes similar trends could start emerging in South Africa’s other major metros if the interest rate and inflation rates manage to remain stable.
“Retail has also been adversely affected by economic conditions, with weakened sales performance driving high mall vacancy rates,” says Mott. “Industrial, on the other hand, has enjoyed relatively low vacancy rates, resulting in stronger growth in the sector, making it the best-performing commercial property type in 2023.” As for what to expect in the year to come, Mott says recent increases in high value commercial and industrial sales are extremely promising.
“2024 looks set to be a better year to acquire assets,” he says. “Sustained pressure on interest rates and inflation could see more properties coming to market, making it a great time for investors to expand their portfolios.”
Property Finance
Property finance kicked off the 2023 year with skyrocketing interest rates and declining consumer affordability. According to Leonard Kondowe, National Manager for the brand’s in-house bond origination division Rawson Finance, these conditions were largely driven by global circumstances beyond our control. “Despite the difficult market, lenders were most definitely still willing to finance property purchases,” he says. “In fact, we saw an increase in competition between lenders to secure qualified buyers, resulting in a lot of very favourable deals being done. That said, affordability has been under serious pressure, and the total number of bond applications has gone down.”
With interest rates finally on pause, and inflation taking a breather, Kondowe says signs are positive for 2024. “The most critical influences will be whether or not the ongoing Middle East crisis can be contained, and of course the handling of our own elections here at home,” he says. “Ideally, we want to see stability and recovery in our economy, which would have a knock-on effect on consumer affordability and investor sentiment.”
Market set for late 2024 improvement
Conditions in the real estate market are likely to remain tough for the next few months but improve towards the end of 2024, says Gerhard Kotzé, CEO of the RealNet property group.
"Everyone is holding their breath at the moment to see which way interest rates are likely to move in the next two quarters, if they move at all. And the US Federal Reserve, which has the biggest influence on other central banks, seems set to maintain its base lending rate at around 4 to 5 percent. It has been struggling to contain inflation in the face of unusually high US employment numbers that are only expected to moderate in the second half of 2024.
"This will probably mean that in order to remain competitive in attracting investment, the SA Reserve Bank has no choice but to also hold off on any major interest rate cuts, despite the fact that SA's inflation rate has more than halved in the past year and is now back withing the 3% to 6% target range."
The Reserve Bank is also known to be concerned, he says, about the upside risk for inflation due to the ongoing war in the Ukraine and now the conflict in the Middle East. "Winter in the Northern Hemisphere could see global food and oil prices rise steeply again as demand rises in the face of dwindling supply.
"Consequently, we don't expect the average SA household to have much of an increase in disposable income next year, or that there will be a big surge in homebuying.
"Economic stress and low affordability will still be major challenges, with the start of the year usually bringing increases in school and transport fees, insurance premiums and medical aid costs, as well as various other regular expenses. These will probably not be matched by similar increases in wages or salaries. Then tax increases and the mid-year municipal rates and tariff hikes will put household budgets under further strain."
For now, says Kotzé, loadshedding continues to destroy businesses and employment opportunities, and to cause banks to become more cautious about extending credit. "And as a result there has already been a further decline since last year in first-time buying, which was the main force behind the remarkable post pandemic market recovery.
"Nevertheless, from an investor's point of view, we believe we are now at or very close to the bottom of the market cycle, and that the first half of 2024 will be one of the best times to buy real estate in the past decade.
"For one thing, many commercial and private users have now installed their own solar or wind-driven power plants and continue to take strain off the national grid. This means that we can look forward to less loadshedding, more jobs and ultimately, more home buyers.
"In addition, loadshedding and the unreliability of internet connections has had the effect of drawing many people back to their offices and boosting corporate demand for prime office space. This has cleared the way for the conversion of many more lower grade buildings into affordable apartments suited to first-time buyers and buy-to-let investors.
"And finally, building plan statistics show that there are far fewer new projects coming on to the market now, so the oversupply of existing flats and townhouses will steadily be absorbed until a supply-demand balance is reached."
At that stage, he says, prices will start to show bigger increases again, especially if interest rates have also moderated. "We expect this to take place in the latter half of 2024, but until then, we are advising all owners who want to sell quickly to set very realistic, market-related asking prices, with the help of a seasoned property professional."
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