What’s Ahead for Residential Property in 2018?

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By Herschel Jawitz, CEO, Jawitz Properties

The gradual slowdown in the rate of growth in property prices across the country has left home owners, buyers and investors wondering what could be in store for residential property in 2018. Unless we see a massive positive shift in consumer and business confidence, 2018 will be much of the same. This slowdown extends to the Western Cape – a niche market in itself – where property price growth has fallen below 10% for the first time in at least three years. Times are tough, but yet almost ironically, there has never been a better time to buy property than now.

In Gauteng and Kwa-Zulu Natal, the slowdown in property price growth has reversed with a marginal uptick in prices in October and November possibly signalling that prices have bottomed out. However, this needs to be seen in the context of property prices growing by 3.5 to 5% in nominal terms, which is below the current rate of inflation.  Other than in the Western Cape and more specifically Cape Town, property prices had declined in real terms by the end of 2017.

Downsizing from large homes that are expensive to maintain and run (and because of security) is a definite trend in cities like Johannesburg.  Over time, this trend will put pressure on property prices for these sorts of homes.

Buyers in the sweet spot

With a slow economy, low consumer confidence and price sensitive consumers, the key driver for buyers is value – a combination of position, price and size – at virtually every price level. We are even seeing this at the top end of the market. In most regions across the country, supply continues to exceed demand with cautious buyers spoilt for choice. Buyers are looking for the best deal they can get showing no fear of loss or urgency if they cannot get the property they want where they see value. This includes a reluctance to get involved in significant improvements to a property, believing they can pay the same value driven price for a home that is ready to move into.

Despite a challenging economy, first time home buyers continue to show strong interest in the market especially in the sectional title market, which offers low maintenance, secure and affordable living. The percentage of first time buyers in Cape town is noticeably less than in most other parts of the country including Johannesburg, given the higher prices in the sectional title market in Cape Town.

Buyers are also benefitting from increased competition among the banks. We have seen a gradual improvement in the rate concession from the banks in 2017 and expect this trend to continue in 2018.

Sellers shouldn’t sit on the fence

The strong advice to sellers is that now is not the time to test the market to see if you can get your price because for most, the answer will be ‘no’ in 2018. Pricing your home in the current market requires a strong dose of realism and acceptance that this is a buyers’ market. There is a strong negative correlation between the length of time a property stays on the market and the final selling price. For sellers, the competition is not for a smaller pool of buyers but rather which other sellers you are competing with to attract these buyers. It all comes down to price.

The difference between a buyers’ and a sellers’ market

Rhys Dyer, CEO of ooba, explains that knowing what kind of market you’re operating in is essential for both buyers and sellers. Here, he summarises the difference between a buyers’ and sellers’ market:

“In housing terms, a buyers’ market occurs when there are plenty of homes available, but not enough qualified buyers to ‘absorb’ them all. Housing supply is high while demand is low,” Dyer explains, adding that, under such conditions, homes take longer to sell and homeowners often have to reduce their asking prices to land a buyer. “Sellers have to take whatever they can get, for the most part.”

A sellers’ market is the exact opposite, says Dyer. “It occurs when there are few properties listed for sale, but plenty of buyers ready to purchase. In other words, supply is low but demand is high. In these situations, buyers have to fiercely compete with one another for a limited number of homes. Multiple offers are common, and they can turn into bidding wars.”

“Where a national or even global recession can create a nationwide buyers’ market, for the most, home prices climb rapidly in some areas – take the Cape, as an example – but fall in others. Supposedly, there is a balance point, but, realistically, the balance point is something that the market passes through while shifting from one type of market to the next. The property market constantly goes through cycles, with opportunities in every market.”

So, how do you know if it’s a buyers’ or sellers’ market? Dyer advises that you stay abreast of your local property prices – whether it be through newspapers, estate agents, or the internet. It’s essential to gain insights on the market, thus allowing you to make an informed decision.

The Investment Market

With property price growth at its lowest point in many years, 2018 will continue to be a great buying opportunity for property investors. Similarly to buyers, tenants are also very price sensitive and rental escalations are generally at the 6% mark. Many lessors are focussing on keeping good paying tenants at a slightly lower escalation. Yields will continue to increase gradually as rental escalations marginally exceed property price growth.

The broader picture

Consumer confidence remains the single biggest challenge to the recovery of the residential market – driven more by political than economic or financial concerns. When consumers start to feel more positive about the long-term future of the country, they will buy properties. Right now, many ‘would be’ buyers are adopting a ‘wait and see’ approach.

From an industry point of view

The blocking of the P24/PP deal and the acquisition of Private Property by a consortium with the industry are both key events that could see the property space shift quite drastically. Driven by both cost, reach and more effectiveness – the ongoing, though gradual shift from print to online marketing of properties continues to dominate. More and more transactions are happening via technology, bringing together compatible buyers and sellers from all over the world, or even just down the road, at a click of a button.

For this and many more informative articles on real estate investment from an SA perspective, read our free monthly digimag.

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