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As with the rest of the South African residential property market, Hermanus has also felt the pinch of rising interest rates, the introduction of the national credit act, the spiralling cost of living and political uncertainty.

To compound the situation, Jawitz Properties says that homeowners are reeling from the high values being placed on their properties as a result of the new municipal market-related valuations. In addition, many sellers are objecting to the fact that their asking price is, in fact, substantially less than that of the new market-related municipal valuation of their property.

Jawitz Properties says the second 'beach-house' holiday homeowner is certainly about to feel the pinch and the outcome will no doubt be seen in the coming months. This forewarns of a possible further slump in the property market as a knock-on effect.

Rona Legator of Jawitz Properties says that despite all the negative indicators it is unlikely that there will be a property crash as experienced in the mid-nineties when interest rates peaked at 25%.

“But the deflation in house prices is likely to continue for the next couple of years,” she says.

According to Marius Pieters, the local principal of Seeff Properties in Hermanus, their sales volumes are about 25% down on the same time last year. Furthermore the residential property they have on the market currently takes roughly six months to sell compared to 60 to 90 days a year ago.

“I foresee difficulty if interest rates increase by a further one percentage point and at the moment this seems very likely,” Pieters said.

The price bracket where the weakening economic fundamentals have been mostly felt is properties from R700 000 to about R2 M.

According to John Loos, property strategist from FNB, the weakening fundamentals will be felt more in Hermanus because of the holiday demand that drives the town?s market than is the case in big cities where primary residential demand is dominant.

“Interestingly, it may not be so much about interest rates as it is about the economy. Hermanus attracts a lot of 'high net worth' buyers. Many of them are more immune to interest rate moves than the rest of us, with perhaps a greater portion of cash buying. However, high net worth individuals often find themselves with a higher percentage of 'flexible remuneration', i.e. discretionary bonuses, share options etc.

“This remuneration is likely to be affected significantly as the economy weakens, many share prices have taken a knock and weaker company performance affects bonuses. These events should have a negative impact on non-essential buying such as holiday property, in the near term,” says Loos.

However, the very high-end of the market (properties above R5 M) attracts mostly cash buyers and has not been so affected by the recent change in economic conditions. In many cases this end of the market is frequented by foreign buyers.

According to Legator Hermanus is currently seeing quite a few such sales at prices between R5 M and R15 M for prime seafront properties.

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