The residential property market is showing signs of stabilising as activity has dropped marginally. There is, however, robust growth from the middle-income houses, according to the second-quarter FNB Residential Property Barometer.
According to Ed Grondel, CEO of FNB Homeloans, the drop in activity can be attributed to seasonality, as winter sets in and fewer houses come to market. Grondel says this is a sign of a more stable market than the rampant unabated price increases we saw last year.
The increase in the number of houses selling below asking price to just less than 50% indicates that unrealistic prices in the top end are no longer being met. According to the barometer, the percentage of houses on the market for longer than eight weeks has risen to 20% from about 12% last quarter and, on average, homes are taking seven weeks to sell.
The top end of the market is beginning to show indications of weakness. There are signs of a slow down in the increase in property prices and the buy-to-let market in the R1-million to R3-million property range is showing signs of oversupply. Currently there is a 43% vacancy level in these properties and owners are relying on increasing property prices to subsidise the shortfall in rental collections. Grondel says that if property prices in the top end continue to slow we could see rental stock coming to the market. Already about 11% of rental properties are returning to the market. This would put pressure not only the buy-to-let market but on property prices at the top end.
Ronald Ennik, MD of Pam Golding, says the Cape Town market is showing signs of trouble. “Although we had a good month in February, the property market has fallen off the cliff.” Ennik attributes this to the lack of an emerging black middle class in the Cape, which is driving the property market in Gauteng. He also said economic issues such as the closure of textile factories were having an impact.
Despite this apparent slow down in the upper end, the middle-priced property market is growing rapidly, particularly in Johannesburg, which saw a 30% increase in prices from the first quarter last year to the second quarter this year.
This is in part owing to the increasing number of new entrants into the market. According to real estate professionals, 32% of buyers are first-time entrants compared to 26% in the last quarter of last year.
Dr Cees Bruggemans, chief economist at FNB, attributes this to an improving economy and increasing job creation. “We are seeing evidence of job creation in all aspects of the economy, including car sales.” He says that as incomes are rising, the traditional family unit is fragmenting and younger people are wanting to live on their own. He believes this trend will drive the property market over the next 10 years. He also says that the falling interest rates have made housing more affordable. Bond repayments are now in line with rentals and people would rather own than rent.
Bruggemans expects interest rates to continue to decline over the longer term, giving further impetus to the property market, although he believes best returns are properly behind us.