The current buyer's market is seeing a recovery in housing prices, according to the latest FNB report for July. An overall 5% property value drop is forecast for 2020, as SA's weak labour market and uncertain economic outlook is still expected to impact the sector.
The data shows that annual house prices have grown by 1.4% year on year in July 2020, revised on 0.7% growth in June and 0.6% in May.
However, as the movement of pent-up demand due to lockdown, coupled with super low interest rates and transfer fees continues to fuel a rapid rebound in the affordable price segments, the FNB Estate Agents Survey shows actual market activity plummeted to 3.4 points in 2Q20, from 6.4 in 1Q20, prior to the lockdown.
This marks the lowest rating in 17 years (since the inception of the survey), and is below the 4.4 recorded in 2Q08, during the global financial crisis, says FNB’s property economist Siphamandla Mkhwanazi who South Africa's economic woes to have an impact further down the line.
"Anecdotally, this implies that the impact of the pandemic will be larger than during the previous market shock, at least from the market volumes perspective," says Mkhwananzi.
The slowdown in activity was experienced across all price segments, although agents in the affordable market (defined as properties priced < R750k) reported relatively better activity. FNB puts this into context, as activity rating in the affordable market declined to 4.7, from 6.9 in 1Q20. By comparison, activity rating plummeted to 2.9 points, from 6.02 in 1Q20, for the “conventional” market (defined as properties valued > R750k).
And the main reasons for selling?
Survey results show “Downscaling because of life stage” as still the most prominent reason for selling a property in South Africa, with such sales accounting for 23% of all transactions in 2Q20.
Agents also reported an increase in volume of properties believed to be put on the market due to "financial pressure". This was accompanied by a decline in the volume of sellers who are believed to be looking to upgrade. The rise in selling due to financial pressure largely came from the low- to middle-priced segments (< R750k and R750k–R1.6m segments).
"Nevertheless, an estimated 55% of these sellers return to the market and look for a cheaper property, as opposed to renting.
"Emigration-related sales remained unchanged at 17% in 2Q20, after having averaged around 18% over the past year. The bulk (70%) of those selling to emigrate are aged between 35 and 44 years old.
Prices expected to decline over the next 12 months
Mkhwananzi says the market outlook is low, with only 44% of the interviewed agents see activity improvement in the next two to three months. The majority of those who expect activity to improve primarily operate in the affordable segments. From a home value perspective, 70% of sampled estate agents believe that prices will decline over the next 12 months. However, only about 46% expect a decline in property values in the affordable market.
"This is consistent with our view that we will likely see a contraction in prices in middle to affluent segments, with a relative resilience in the affordable market.".
Overall the FBN forecast projects that house prices will contract by an estimated 5% for 2020.
'Negotiating power favours buyers in the upper segments'
The survey results further show that the pandemic has not yet led to exceptional market discounts. In fact, the average discount (difference between the final sale price and sellers’ initial asking price) was 12% in 2Q20, relatively unchanged from 13% in 1Q20, according to Mkhwananzi.
"This could be due to a limited number of transactions taking place during this period (due to lockdown), and that transactions may have been constrained to sought-after areas. Some agents opined that '… people who really want to buy are not influenced by the pandemic'."
Furthermore, there has not been a material change in the volume of transactions concluded at below the initial asking price (79%, relatively unchanged from 80% in 1Q20). As expected, this varies markedly across price segments – with an estimated 92% of transactions in the R750k and above segment concluded below asking price, compared to 39% in the affordable market. This suggests that the negotiating power still favours buyers in the upper segments, and sellers in the lower end.
This, in part, is supported by the fact that approximately 5% of transactions in the affordable segment are concluded at above the sellers’ initial asking prices. Nevertheless, there is a ceiling to which sellers (in the affordable market) can push their asking prices, even with a supply deficit.
Agents explain that this would be the case when socioeconomic conditions do not allow or when asking prices are simply unrealistic.
'Pent-up recover phase expected in 2021'
Overall, the FNB Estate Agents Survey results are consistent with our outlook, states Mkhwananzi.
"We expect both volumes and house price to decline significantly this year. Some pent-up demand could be unleashed in the recovery phase (potentially from 2021), due to lower prices and borrowing costs. However, this will likely not be enough to replace the lost demand (possibly constrained to sought after areas) due to very weak labour market outcomes and the uncertain economic outlook. Indeed, some agents report that they have started seeing a recovery in buyer interest, and web traffic to property portals continues to improve.
"We reiterate that sustained recovery will depend on confidence and labour market outcomes."
*Article sourced from Private Property*
Click the link for more on Strombeck Pieterse Attorneys - Strombeck Pieterse Attorneys