South Africa is in its first technical recession in nine years. This means the economy has been in negative growth for two quarters. We all know markets have cycles of both up and downturns. The latest statistics from FNB’s Property Barometer show that real estate growth will be poor and house price growth rates will only be between 3 and 4%. The Western Cape in particular faced the double challenge of a decline in semigration buying and the drought. Both has had a drastic downward effect on price growth slowing to just 1.5%. If you consider that inflation is currently at around 6% this means that there is currently negative growth for many investors and owners.
Over 96% of sellers need to drop their asking price to conclude a sale and 7,8% are selling for reasons to emigrate. Twelve weeks to sell a property characterises the general standard sales period in the market. The current average is at just over 14 weeks. Johannesburg and Ekurhuleni are doing better selling from 12-15 weeks and 11 weeks in Pretoria. Cape Town is 15 weeks, but longer for upper end areas, according to Seeff Properties. Durban (Ethekwini) and Port Elizabeth (Nelson Mandela Bay) still lags selling notably at a much longer 21-22 weeks.
Secondary home buying is expected to improve, but is still around 13% (from 20% in the pre-2007/8 boom period). Foreign buying, also mooted for an uptick, still sits at just over 4% of all residential buying with even buying from the African continent down due to weaker economic conditions on the continent. Expat buying remains low at 1.5% of all buying.
Although the economy and property market is showing improvement, it is still all about property buyers. We wait for more positive sentiment to translate into a meaningful increase in investment activity. Sentiment is starting to turn and indications are that we are on the up. Consumers have had to absorb the effects of high inflation and added to that land reform uncertainty on the expropriation without compensation.
The recently launched SA Retail Snapshot Q2:2018 Broll Report highlights current retail consumer pressure, with shrinking salaries, VAT increases, petrol price hikes, escalating food costs and soaring electricity fees, which all have a direct impact on the local property industry. Today’s extremely discerning consumer carefully considers how they spend their diminishing disposable income. This core insight confirms the need for game-changing moves but yet still sticking to the basics of growing your wealth in these tough times.
We have to remain upbeat about the year ahead. Economic improvements are filtering through encouraging steps taken by President Cyril Ramaphosa on new foreign investment drives. Investment tips for dealing with a recession are sticking with your plan, consider offshore investment and understand where the value and opportunities in cash flow behave in tough times. Don’t get emotional about the situation and focus on the long-term.
“As sure as the spring will follow the winter, prosperity and economic growth will follow recession.”