South Africa’s economy is officially in recession. It's our third recession since 1994, but the analysts and industry experts are not at all surprised.
The economy and property market have to a large extent already factored this in for a while they say, as new Gross Domestic Product numbers, released by Statistics SA on Tuesday, 3 March confirmed SA’s economy shrank by 1.4% in the fourth quarter of 2019.
This followed a contraction of 0.8% in the third quarter, which means that the economy was in recession for the last half of 2019. South Africa last entered a recession in the second quarter of 2018 - when the GDP fell for two consecutive quarters.
Investec indicates domestically, this recession together with escalating, planned government debt trajectory are serious negatives for SA’s credit ratings.
“We believe it will be a very close call whether Moody’s downgrades SA’s credit rating on 27th March, and so a drop to sub-investment grade is entirely possible, and is being priced in by the markets.”
‘Property prices will remain under pressure’
Samuel Seeff, chairperson of the Seeff Property Group says the news that the overall growth rate for 2019 averaged at just 0.2% comes as no surprise.
“The message that we are operating in a low growth environment was clear from SONA and Budget 2020 and with no quick fixes in sight, the expectation was always that this will be another challenging year for the economy.
Seeff says “overall property prices will remain under pressure and will likely only see 2 - 4 % growth, but probably better at the lower price levels and more muted at the upper price bands”.
As a seller in the sub-R1.8m sector of the market, there can be an expected increase in buyers, boosted by the interest rate cut in January and the possibility of a further rate cut in March. Additionally, the increase in the transfer duty threshold to R1 million and personal income tax relief combined with the favourable bank lending climate should spur more buyer interest, says Seeff.
But it’s the upper end of the market, above R5m (R8m in some high end areas such as the Atlantic Seaboard) that a “wait and watch” approach is necessary.
“Generally, we expect that the market will adjust to what has become the ‘new normal’ and those who need to or want to buy, will now take advantage of the favourable buying conditions,” says Seeff.
'Cyclical downturn as property prices 20% below last peak in 2015'
Dr Andrew Golding, chief executive of the Pam Golding Property group, says the technical recession is indicative of the property market cycle, which last peaked in 2015.
“Since then both prices and transactions have come off at roughly 5% per annum, with the result that prices and volumes are now about 20% below their peak in 2015.”
‘Reality check for market pricing’
“The unfortunate consequence of these market conditions is that if sellers are serious about selling their properties, they will need to be realistic regarding the current economic climate and the reality of pricing in this market,” he says.
Transaction volumes did show some modest growth, according to the Pam Golding Residential Property Index, which showed house price inflation was muted last year at 2.5% Jan-Dec 2019.
“While we anticipate that house price inflation this year may be stronger than last year, it is unlikely to significantly exceed the prevailing inflation rate. So we anticipate another year of below inflation house price growth. with pockets of strength,” says Golding.
‘Metros, coastal and secondary coastal towns retaining value’
But he is sober in his analysis in that the property market is "hyper local, and certainly not a one size fits all”.
Golding suggests keeping an eye out for “pockets of outperformance” that buck the national trend as a “host of nuances and factors are at play in different regions and suburbs around the country”.
In high demand areas or areas where there is perceived value for money, well-priced homes are selling in days, he says.
Homes continue to retain sound price growth in Metro areas where demand continues to outstrip supply. Retained value can also be seen in "certain coastal markets and secondary coastal towns, but particularly frontline coastal property".
"Also commuter belts or areas close to transport nodes have high appeal for those seeking a convenient live, work, play lifestyle.
“In addition, university towns, such as Stellenbosch, and homes within estates, are doing relatively well and certainly reflecting higher values than those just outside estates,” says Golding.
‘Downturn bringing affordability back’
The positive take-away from the economic outlook is bringing “much needed affordability back to the market, which had run well ahead of economic realities”, he adds.
This coupled with the demographic dividend of the raising of the transfer threshold for our young population, with approximately two-thirds of the current population under the age of the average first-time buyer (34 years, according to Ooba).
Slowdown could bolster prices in pre-owned sector
David Jacobs, Gauteng Regional Manager for the Rawson Property Group echoed the cyclical notion of the market that now favours the buyer and forces sellers to start pricing their homes better.
While moderate sales continue, Jacobs advises sellers to seek advice and services from an experienced estate agent during these “challenging market conditions”.
He also warns that during a recession the “building industry begins to take a bit of strain”.
“Slowdown in building causes a shortage in the market where demand is high and the supply is low. The silver lining in this scenario, is that it will tend to bolster prices in the pre-owned sector of the residential market. Buyers will then concentrate on buying pre-owned homes, where there is room to negotiate a better price.
“We need to remain positive about the stability of our country's future. Irrespective of whether the recession continues or eases, we are facing a difficult time. Consumers have come through such times in the past and have become stronger for having survived,” says Jacobs.
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