Recession may be a boon for buyers in property market

Last week's announcement that the economy has slipped into a recession does not bode well for the local property sector, according to Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.

Stats SA reported on Tuesday last week that the country was in a technical recession after real gross domestic product contracted by 0.7% in the second quarter of the year. This follows a revised 2.6% contraction in the first quarter.

Goslett said a recession usually translates into a "buyer’s market" where the supply of properties outweighs demand. 

This is because during a recession unemployment tends to increase and consumers' spending power declines.

Unable to afford the monthly bond repayment costs, more home owners usually put their properties up for sale or banks repossess them.

However, recessions could lead to a smaller pool of buyers as many simply cannot afford the costs of purchasing property.

"While (the recession) does not spell good news for sellers, buyers who have planned for the possible recession will be able to purchase property at much lower prices,” he pointed out.

Interest rates

Investec chief economist Annabel Bishop told Fin24 on Monday that Investec now expects at least one interest rate hike from the SA Reserve Bank by year end - if not two - of 25 basis points each.

"The path of the domestic currency will influence this decision heavily, as the rand’s weakness to date will influence the CPI inflation outcome for the rest of this year, given its prolonged sustained nature," said Bishop.

She said that, with a number of other emerging market economies poised to hike rates this month, an interest rate hike by the SARB would not go against form, while the US rate cycle still has further to climb and risk aversion levels are showing no indication of subsiding yet.

Dr Andrew Golding, chief executive for the Pam Golding Property group, is of the opinion that further interest rate cuts at this stage by SARB are unlikely.

“Economic growth is likely to continue to be sluggish for the balance of 2018 and although forecasts are for slightly stronger growth in 2019, this will take time to play itself out into the property market," commented Golding.

"Generally speaking, this suggests that the local property market will continue to be tepid but with some areas of outperformance and excellence.”

He also said despite the recession, there will still be areas that continue to outperform by fulfilling a particular demand.

These would be suburbs offering an alternative to congestion, a flourishing business hub and easy access to good schools. Examples include Claremont in Cape Town and Durban North and uMhlanga in KwaZulu-Natal, he said.

Areas which offer access to good schools and work, but better value-for-money property such as Cape Town’s Northern Suburbs and green mixed-use developments such as Menlyn Main in Pretoria, are further examples.

National house price inflation has softened gradually during the first half of 2018, with prices increasing by an average 4.3% during this period. However, once adjusted for inflation (real prices), house prices at a national level remain unchanged from the same period a year ago.

Interestingly for Golding, coastal properties (within 500m of the coastline) continue to outperform, with prices rising at almost double the pace of non-coastal properties. Furthermore, as is the case nationally, Gauteng is experiencing an increasing demand for sectional title apartments.

Berry Everitt, CEO of the Chas Everitt International property group, commented that SA may be in a “technical” recession, but a closer analysis of the figures released by StatsSA last week shows that the economy is actually heading in the right direction and that the construction and real estate sectors are among those performing best.

Everitt also regards the SA real estate market as currently being a "buyers’ market" because sales are slower overall, and prices are static or only growing very slowly in most areas.

“In property as in any other economic sector, following the crowd is a bad idea, because by the time general sentiment turns positive, prices will usually already be moving upwards quite rapidly and much of the opportunity to maximise gains will be lost,” he cautioned.

And that turnaround, he believes, is only a few months away.

“In addition, property investors need to keep in mind that SA still has a significant structural shortage of square meterage to accommodate our growing population, and that there is high and rising demand for decent rental housing close to city centres and other employment hubs because of the rising cost and inconvenience of travelling to work,” he said.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

ZAR/USD
17.20
(-0.08)
ZAR/GBP
22.49
(-0.04)
ZAR/EUR
20.24
(-0.11)
ZAR/AUD
12.26
(-0.24)
ZAR/JPY
0.16
(+0.03)
Gold
2000.63
(+1.32)
Silver
25.64
(+5.91)
Platinum
934.00
(+1.68)
Brent Crude
43.86
(+1.45)
Palladium
2114.08
(+1.67)
All Share
56248.93
(+0.75)
Top 40
51951.34
(+0.74)
Financial 15
9878.55
(+0.75)
Industrial 25
74943.49
(+0.27)
Resource 10
57327.85
(+1.31)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes. We need the money.
11% - 836 votes
It depends on how the funds are used.
74% - 5553 votes
No. We should have gotten the loan elsewhere.
15% - 1108 votes
Vote