Although winter tends to be a slower time for the property market, FNB’s Estate Agent Home Buying Survey for the second quarter of the year shows that there is a definite drop in demand for residential properties.
Demand is down by -5.9% for the same quarter last year, suggesting that there’s more than a seasonal factor at work here.
In fact, estate agents say that financial pressure on households — together with the lack of a further interest-rate cut — is what’s keeping South Africans from buying right now.
A sample of estate agents from South Africa’s six major metros put residential demand at 5.61 for the quarter (1 being weak and 10 being strong). This is down from their 6.07 rating in the first three months of the year. And according to the Estate Agent Confidence Indicator, for the fifth successive quarter in a row, agents’ expectations of demand have dropped.
All this seems to indicate that South Africans are feeling the pinch and many are selling in order to downscale — this accounted for 22% of sellers in the first three months of the year, but a greater 25% in this quarter.
About half these sellers (51%) are choosing to rent rather than buy a small property, perhaps waiting until their financial conditions improve. The National Credit Act has also made it tougher to get a loan, so that could be a factor, too.
Of course, we haven’t seen a rate cut since November and the pressures of inflation will make life tougher, so the punctured confidence of estate agents isn’t hard to fathom. FNB home loans property analyst Ewald Kellerman says that the positive impact of last year’s interest-rate cuts on demand are starting to wear thin.
Although the average time in which to sell a property has shortened to 15 weeks and 1 day this quarter, from 19 weeks and 1 day in the first three months of the year, this is still a long time to wait to sell if one looks back at 2005/6, when it took under two months to sell a property.
Is this because the market is unrealistically priced, or because supply is still stronger than demand? Both factors could play a role. Consider that 87% of sellers have to drop their asking price to make a sale (up from 85% last quarter). The average drop in asking price has hovered between -11% and -12% since FNB first conducted its survey at the beginning of last year.
First-time buyers who have secured loans are on the increase, though — according to the survey, the first-time buying percentage has increased from 22% in the first quarter to 25% this quarter.
It seems that many South African homeowners are hurting, though, and the bad news is that times will only get tougher when interest rates do ultimately rise again. It may be that the household sector hasn’t recovered from the recession. Or it may be that we’re bracing ourselves for anticipated increases in everything from food to electricity.
Either way, the residential property market isn’t looking terribly rosy right now.
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