Residential market on the mend

Residential market on the mend

Estate agencies report robust show days and short duration of properties on sale.

Shorter duration of properties being on sale, robust show-day attendance and stock shortages fuelling a surge in residential property prices: could this spell a recovery for the residential market?

The market is in a significantly better mood since the wrath of the global financial crisis in 2007 – where demand slowed and house price growth depressed.

But the turbulent tide seems to have turned for the better and the market seems to be picking up.

“In 2014 the market is significantly better. We call this a balanced market, there are a good number of buyers and sellers,” says Seeff chairman Samuel Seeff.

The turning point for the residential market has been nearly two years in the making and has accelerated in 2014.

Following “very tough years from 2007 to 2013”, real estate agencies are trading in a market where properties are being snapped up in a shorter period.

“Depending on price categories, homes are selling between one to two weeks, where they were taking 20 weeks prior. There is demand and things are moving,” he says.

The residential market is not where it was in the heyday before the global economic meltdown, where year-on-year growth was up to 30%, says Herschel Jawitz, CEO of Jawitz Properties. “In terms of sales volumes, we were able to reclaim about 55% to 65% of lost ground since the global financial crisis,”Jawitz told Moneyweb.

Part of the residential market’s recovery, says CEO of Pam Golding Properties Dr Andrew Golding has been the gradual accumulation of pent-up demand, demographical changes, a weakening currency, which encourages consumers to “seek what they perceive to be more solid investments, and a return of confidence”.

A relatively recent factor in improving confidence and the appetite for property has been greater access to bond finance.

“Bond finance has become easier. In fact, in the first half of the year banks have lent some R12 billion worth of mortgages – more than any other category of private sector lending,” Golding explains.

Despite banks flexing their muscle with credit, there is limited supply to back up demand, which paves the way for property prices to start rising. The shortage is across the board in all property values.

Jawitz says the imbalance between supply and demand will result in better than expected price growth of 7% to 9% in nominal terms (before inflation).

SA money spinners

The estate agency market agrees that the sub-R2 million sectional title market and the house market of up to R4 million is showing the most activity in the country.

“The demand in these segments far outstrips supply where price growth can be expected. Recovery in all sectors of the market right up to the luxury end will also see greater demand this year [2014] than in 2013,” Jawitz says.

The luxury market (properties above R10 million) has seen buyer activity double. The Western Cape’s Atlantic Seaboard (Clifton, Bantry Bay, Fresnaye and Camps Bay), southern suburbs and the Winelands/Franschhoek are showing some buying activity says Seeff.

Gauteng’s Sandhurst, Westcliff, Hyde Park, Dunkeld, Morningside and Pretoria East are showing the biggest demand.

But the macroeconomic picture is still a threat to the residential market. High consumer indebtedness and low economic growth are set to put consumers under pressure. The central bank has made it clear that interest rates will rise, already seen in the 75 cumulative basis point hike this year.

Chief economist at Rand Merchant Bank, Ettienne le Roux says based on the historic trajectory of interest rate hikes – where in some interest rates have risen by up to 400 basis points – he expects rates to rise between 150 to 200 basis points over the next few quarters.

Seeff also has a similar range, saying a prime interest rate of below 11% will not have a significant impact on the market. “The country faced a time where interest rates were 15% to 16%. Below 11% is still comfortable for us to trade in,” he says.

Even with a slow economy and rising interest rates, Jawitz says the current demand is “unlikely to taper off as the pent-up demand from the last few years re-enters the market.”



Denny Crane

Denny Crane
It's not me ... yet. Denny Crane from the TV series Boston Legal. Click on picture if you're not sure who he is!