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The coronavirus may not affect SA’s real estate market in terms of price declines, but sales volumes in the upper price band will take the strongest hit, industry experts said.
Times of increased uncertainty are associated with low confidence and an unwillingness to spend on high-priced items. Preliminary data from the writing office shows that market volumes have already decreased by 40% year-on-year.
The high-end market continues to be oversupplied, while the low end still has a structural supply deficit, states the latest FNB Property Barometer, released Thursday.
“We hope that these dynamics will play a crucial role in determining the path of house prices this year,” says real estate economist FNB Siphamandla Mkhwanazi.
“We hope that massive job losses and increased uncertainty will result in a sharp drop in transaction volumes as buyers delay their purchasing decisions.”
Earlier this week, Banco de la Reserva de SA cut the repurchase rate by 100 basis points, or one percentage point, bringing the repurchase rate of SA to 4.25%. At the same time, the central bank’s latest projection for the SA economy is to contract 6.1%.
The March FNB House Price Index (HPI) shows that house price appreciation slowed to 2.8% y / y in March, the lowest print since May 2011. The impact of the blockade on volumes and prices has not yet is reflected in the data.
The latest FNB barometer report says that the search engine data shows a rebound in web traffic to property portals in SA since the shutdown.
While it is too early to draw definitive conclusions, the report says this could be an early indication of the growing bargain-seeking by investor buyers and / or the pent-up demand from first-time buyers seeking to capitalize on struggling sales.
FNB expects Covid-19 to have a sharp but short-lived impact on the SA property market.
Higher prices, greater bleeding
FNB forecasts that the biggest decline in nominal house price growth can be expected at the upper end of the property market.
Samuel Seeff, president of Seeff Properties, anticipates that buyers in this higher price band will likely remain in the same “waiting pattern” seen in the past 18 months.
“Is [is] despite the fact that buyers can negotiate strongly in this sector of the market, up to 20% or more of the sale prices, “says Seeff.
As for house price growth in the low and middle price segments, Mkhwanazi expects this to slow down as well, reflecting the already existing weakening fundamentals in the market, now amplified by the coronavirus pandemic.
“We expect the higher-price segments to fall more deeply into negative territory, a decline in nominal prices, due in part to oversupply and greater uncertainty. The middle segments are also expected to decrease and post lower-than-average price growth. 1%, mainly due to weakness in the labor markets, “he told Fin24.
“The low-price segment will also slow significantly, as consumers here are very sensitive to economic shocks, but are expected to perform relatively better compared to other segments due to inventory shortages and relative owner immobility. in this segment. We expect growth here to be slightly above inflation, “he said.
Sudden fears
According to Mkhwanazi, the coronavirus outbreak has caused sudden changes in behavior between home buyers and sellers.
Anecdotal evidence suggests that fears about the impact of the virus and the time it will take to contain it have led some sellers to take their homes off the market.
From the buyer’s perspective, restrictions on human movement and “avoidance behavior” in general have reduced the number of buyer inquiries.
Real estate economist Erwin Rode of Rode and Associates says SA is currently in a three-layer recession. In the past 12 years, structural impediments have led to a slowdown in economic growth, he says. At the same time, SA has also been in a “normal” cyclical downward phase, and then came the Covid-19 impact.
‘Deep and prolonged’ recession
“This is not, therefore, a normal recession, it will be a deep and protracted issue.”
“The implication for the property market is that few transactions will take place for a long time as a result of persistent low levels of confidence,” Rode told Fin24.
“Income will erode and forced sales will become more common as consumers lose their jobs and are forced to accept wage and salary cuts. It is a catastrophe for real estate agents and brokers.”
Seeff says a decline in sales volumes can already be seen, following the weakening economy in the past year, and he expects this to persist.
No cash flow
Dr. Andrew Golding, CEO of Pam Golding Properties, says the reality is that the closing of the Deed Office during closing has effectively ended the cash flow. While the industry is still operating in some way, this also means that, until the time property transfers can be made, real estate agents and agencies cannot generate any income.
“Where will the market be [after] This crisis is really an unknown quantity, but the hope is that there will be an accumulated demand for the transactions that were already in progress, “according to Golding.
“However, a negative potential for the property market is that a severe recession and the resulting increase in unemployment will generally worsen both buyers and sellers and therefore hamper the property market outside where there are difficulties in selling, speculative and buy”.
He anticipates that this would represent a significant obstacle to the property market and is likely to persist until the time the economy begins to show early signs of recovery.
Having said that, however, given the extreme volatility currently being experienced in global stock markets, it is likely that, as seen in times of great turmoil, one can see greater confidence in the bricks and the mortar between investors and home buyers, “Golding noted.
Seeff expressed a similar hope of recovery. “We believe […] The Covid-19 lockdown emergency phase will be characterized by pent-up demand in the primary residential market, as buyers are eagerly waiting to take advantage of market conditions, especially in sub-R1.5 million, up to R3 million in some areas – sector, “he said.
“We are not saying that volumes will increase dramatically, but we expect there will be a level of demand there. Our branches have already made deals ‘virtually’ at the agreed price, but the offers are subject to physical visions once the closure is lifted.” .
Caspar Lee, co-founder of Proper Living, specializing in developing student housing, hopes that buying behavior will change, but believes there is room for recovery.
“Confidence is low, but there is relief knowing that investing in the real estate market remains one of the best investments to make. In a time of crisis, it is a high risk and high reward situation,” he said.
