John Loos, FNB’s Household and Property Sector Strategist, expects “a slightly better residential market performance to emerge in 2018” owing to a number of contributing factors.
The SARB released its Leading Business Cycle Indicator on the 23rd of January. The report revealed a steady rise in certain business cycle indicators, such as a notable improvement in trading activities and exports, and an increase in the average number of hours worked as well as an increase in the volume of orders in the manufacturing sector. In most cases, an increase in these positive contributors is an accurate indication of future economic performance, both locally and globally.
Similarly, the OECD (Organisation for Economic Co-operation and Development) projected that economic growth in the next two years would improve, albeit moderately.
In the Economic Forecast Summary for November 2017, the OECD announced that investment is predicted to support growth in 2019 provided that local business and consumer confidence continue to improve. The ideal, according to the OECD, is to establish an environment where “public investment fosters growth and significantly reduces social inequality.” Investment, whether national or international, is an essential element in all aspects of economic and country-wide growth – South Africa in itself relies heavily on the net inflow of foreign investment.
International and local buyer/seller sentiment was significantly dampened following the recent credit rating downgrades and an increasingly volatile political climate – detrimentally, many investors have taken the “wait-and-see” approach regarding new prospects.
Agents noted that the poorly-performing market activity included a notable decline in both buyer and seller interest as well as activity in 2017.
With reference to the FNB Estate Agent Survey in the 4th Quarter of 2017 an alarming 37% of agents cited “Economic Stress/General Pessimism” towards South Africa’s political and economic climate as the greatest contributor towards a prolonged weakening in the Housing Market (characterised by an imbalance in supply and demand).
Simply put, in conjunction with an oversupply of stock, there is also a major shortage of eligible buyers. Many buyers are no longer in a position to save a decent deposit to strengthen their homeloan application (due to rising household costs), or merely to qualify for a homeloan. This forces an average of 95% of total sellers to drop their asking prices, resulting in a stagnation in house price growth.
However, inflation is now within the target range (3% to 6%) and predicted to remain so. Near-term adjustment to policy rates is a strong possibility, further motivating investment. Additionally, the FNB Estate Aagent Survey’s “Home Buying Confidence Index” has risen significantly since the 4th Quarter of 2016, and continued to show a modest increase Quarter-on-Quarter in the 2017 report.
Loos’ prediction - that the increase could suggest a continued, albeit mild, improvement in 2018 - is supported by the SARB and OECB reports. The notion of economic improvement was bolstered by the ruling party’s December elective conference appointing Cyril Ramaphosa as the new leader of the ANC. A number of favourable elements accompanied the decision – most notably; stabilising food prices, falling inflation, and the possibility of further interest rate drops – which support mild growth in Household Sector Disposable Income, motivating housing demand in 2018.
If the strengthening Rand is anything to go by, (from a high of R14.47 to the Dollar in November to R11.86 come end January) then Harry Meyburgh, a Director at Etchells & Young Property Brokers, is correct in attributing the positive growth predicted in the Real Estate industry [and reflected in the stronger performance of the Rand] to the newly optimist political outlook shared by South Africans, particularly in Johannesburg – SA’s Business Hub.
All in all, estate agents appear to have modest, albeit hopeful, expectations concerning market performance improvement in 2018. Industry professionals, such as Aubrie Etchells - Principle at Etchells & Young Property Brokers - are convinced of the housing market’s resilience and its ability to “bounce-back”. Historically, the housing industry has continued to prosper in times of significant political and economic strain, so one can rightfully expect gradual improvement in overall performance this year.
For the sake of investment and economic growth in the country, “a slightly stronger housing market”, according to Loos, will be a welcome relief.