Residential property market cooling down but sales still doing better than expected, agents say

As house prices grow, so buying activity slows. Picture: Relebohile Lesemane/Unsplash

As house prices grow, so buying activity slows. Picture: Relebohile Lesemane/Unsplash

Published Oct 26, 2021


*This article first appeared in the Property360 digital magazine

While South Africa’s housing market might be cooling down, activity levels are still exceeding expectations as both aspiring and current property owners looking to step on to – or up – the property ladder.

Low interest rates continue to fuel activity but house prices are cooling, meaning that buying levels are also dropping Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa, says the third quarter of 2020 was, understandably, a period of unprecedented activity as record-low interest rates and pent-up demand following the lengthy Deeds Office closure drove sales to an all-time high.

“But what could not have been expected was that this period of hyperactivity would last as long as it has. It is now a full year later and we are still seeing record-breaking sales volumes.”

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Citing Lightstone data, he says more than 44 000 bond registrations were recorded at the Deeds Office from July to last month, with data from the Re/Max National Housing Report showing this was 9% higher than the previous quarter.

“Along with an increase in the number of transactions, house prices also climbed steadily in the third quarter of this year.” Rode & Associates’s Kobus Lamprecht says in the latest Rode Report the housing market “continues to cool”, with FNB data showing that nominal house prices nationally increased by 3% year-on year last month, slowing gradually from the pandemic peak of 5.1% in April.

From January to last month, however, house prices grew by 4.3% compared to the same period last year − on par with consumer inflation.

“The strong house prices during the past year or so can be attributed to record-low interest rates, which suddenly made houses more affordable for marginal buyers and saw some tenants switch from renting to owning.

“Young and first-time buyers have been buying properties in high numbers. “The slowdown in house price growth of late suggests that the interest rate-induced demand has probably already peaked.”

Lamprecht also notes cooling house prices “do not come as a surprise”, given record-high unemployment levels, and says the economy, albeit recovering, has not yet reached pre-pandemic levels.

“It will probably only do so in 2022 or 2023 due to the extent of the damage caused by the virus and government policies over many years. The impacts of the third-wave restrictions and unrest in July have been further setbacks.”

In addition, the prospect of local interest rates rising in 2022/23 does not bode well for house prices over the medium term, he says.

“In fact, one might argue that the upcycle in global interest rates has already started with South Korea lifting rates in August, the first developed country to do so in the pandemic era, while Brazil (an emerging market like South Africa) also hiked rates in August and September. Both countries cited higher inflation as a concern.

“In the US, we believe the Federal Reserve Bank will also start to lift rates late in 2022 or in 2023. This means the start of the upward interest rate cycle in South Africa can’t be far away.”

Goslett says house-price appreciation is strongly linked to the rules of supply and demand. “When buyer activity is high, sellers are more likely to achieve higher asking prices. This then causes greater house-price appreciation until the demand levels out.”

The nationwide average price of freehold homes is R1.352 million, a 2% increase compared to Q2 2021 and a 21% increase when compared to Q3 2020.

Lightstone data shows that the average annual price changes (for the year to date) for sectional titles is 6% and 12% for freehold properties.

Analysing buying activity across the various price brackets, the Re/Max report reveals that, at 26.7%, sales of properties priced between R800 000 and R1.5m continue to account for the largest portion of all transfers occurring in Q3 2021.

This is followed by transfers between R400 000 and R800 000 at 23.1% of total transfers. Siphamandla Mkhwanazi, senior economist at FNB, says the Q3 2021 Estate Agents Survey also shows market activity is starting to drop, with deceleration across most price segments and regions.

However, the decline was more noticeable in KZN, probably as a result of the July riots. “In line with softer market activity, estate agents’ sentiment – as measured by the proportion of agents who are satisfied with prevailing market conditions – pulled back across most price segments and regions.

“Nevertheless, the indicator remains upbeat, particularly in the Western Cape, presumably in line with activity that is still above pre-pandemic levels and on anticipation that unrest in KZN would benefit the Western Cape.

“The decline was more visible in KZN, with 51% satisfied with prevailing market conditions, compared to 72% in the previous quarter and the national average of 74% in (Q3 2021).”

He adds, nationally, properties are taking longer to sell, with the average time spent on the market increased for the first time in a year. This is yet another sign of a cool-down in home buying.

“The reason for selling matrix remained broadly unchanged from the previous quarter and shows sales are still elevated due to financial pressure.”