Residential property sales: Opportunities within adversity?

Recent data on the residential property market underscores just how tough the past year has been. House prices have for the most part crawled up very slowly. And it is by no means certain that the coming year will be much better. What does this mean for us in the property game – how can we prosper in the year ahead?

FNB’s latest Property Barometer reports very modest movement in house prices across most of South Africa. For most of the country, the Barometer reports year-on-year growth in the 4th quarter of 2016 falling well below South Africa’s inflation rate, which closed the year well in excess of 6%. Thus, house prices in Gauteng registered a paltry nominal increase of 1.2%. House prices in KwaZulu-Natal rose by a mere 1%. Those in the Eastern Cape actually declined by 2.9%. And a composite measure of house price increases in the five “smaller” provinces – that is, Free State, Limpopo, Mpumalanga, Northern Cape and North West – stood at 1.2%. In effect, we’ve seen some value loss.

The Western Cape, however, remains an outlier. Year-on-year house price growth, at 8%, kept ahead of inflation, showing real asset appreciation. Indeed, at an average of R1.4 million, houses in the Western Cape are by a considerable margin more expensive than those elsewhere. For comparison, the equivalent cost in Gauteng is R1.0 million – this being around a third lower than properties in the Western Cape.

Denis Quayle, Principal at Harcourts Maynard Burgoyne Constantiaberg, puts this into context: “The Western Cape has consistently shown a resilience that has been lacking elsewhere – this is very much to the relief of those of us fortunate to operate in this province. The property market in the province is a mature, stable one that attracts buyers from across the country, and from abroad. The question is whether this will be sustained in future.”

Sustainability is indeed the kernel of the issue. Appreciation is certainly good for the property owner, but there are indications that it is hitting the less affluent buyer. The Barometer notes that despite the Western Cape’s strong showing, the year-on-year rate of increase has been declining in the province since the 1st quarter of 2016. At this point, it had reached a 10-year high at some 10.6%. The Barometer suggests that appreciation in the Western Cape could be “running out of steam”.

This is supported by the relatively small proportion of first time buyers in this market, specifically in the Cape Town area. Only 10% of buyers in Cape Town are estimated to be first-timers. Across South Africa, the equivalent proportion is 19%. And the difference is even more stark when compared to some of the other metros – 22% of buyers in Johannesburg are first-timers as are an eyebrow-raising 28% in Tshwane. In addition, houses in Cape Town are staying on the market for increasing periods – now a little over 14 weeks on average, up from a shade under 11 in early 2016.

“The most likely explanation”, comments Denis Quayle, “is that in the uncertain climate, sinking money into an expensive property is a risk that many first-time buyers are reluctant to take. In other words, while our property market in the Western Cape has done well, there is an element of being a victim of our success. In short, buying a house does not always seem like the most attractive prospect for those who’ve never done it before.”

Meanwhile, indications are that the housing market is unlikely to see a large-scale recovery in the coming year. S&P Global Ratings, for example, predicts nominal growth of around 5.5% – accounting for inflation, this means little real growth and possibly even a slight contraction. The Western Cape probably has enough momentum to say ahead of the rest, but the slowdown in prices may prove something of a relief.

Denis Quayle argues that this could entice those nervous first-time buyers back into the Cape market. “The important thing is that we recognise that our clients – whether first-time buyers, the more affluent or those seeking an investment opportunity – have exacting needs. We need to be in a position to respond to them, to give them exactly what they are looking for. And we need to market our neck of the real estate woods aggressively. The Western Cape remains a premier market in South Africa, offering wonderful returns on investment. Buying will ot always be easy, but it will be rewarding!”

Western cape is a mature market