Upmarket homes take price hit



The slowing economy has resulted in residential sales in the luxury end of the market — above R3-million — falling into deflation in suburban areas across the country.

According to FNB’s second quarter property market review, which focused on Cape Town and was released a week ago, prices of houses in the affluent suburbs of the city have been declining for a year, partly because of lower demand for houses in these areas.

An FNB economist said that prices in Johannesburg’s affluent areas have also declined by 2.6% over the past year.

The FNB review shows that Cape Town’s estimated average house price growth in the wealthy areas softened to just 0.5% year-on-year from 1.8% in the same period last year.

For example, the FNB data shows prices in the City Bowl were down by an annual 5.7% in the second quarter this year compared to a 3.7% drop in the second quarter of 2018.

This decline appears to be spilling over into middle-priced areas as well.

Zooming out from the rich suburbs, the picture is slightly more positive. The FNB’s Economics Weekly note shows that the nationwide house price growth ticked up marginally in July, recording 3.6% year-on-year from 3.5% year-on-year in June.

Although sales in the affluent areas are lacklustre, the FNB note says this is not the case throughout the property market because activity levels differ across price segments. Not surprisingly, the higher the price, the longer it takes to sell. Lower end houses remained on the market for an estimated average of 11 weeks and one day, while it is an estimated 19 weeks and five days in the more affluent segments.

“PropStats [an initiative of the Institute of Estate Agents of South Africa] indicates that from January to July this year, homes in Cape Town’s sought-after southern suburbs remained on the market for an average of 133 days compared with the same period in 2018 when homes were on the market for an average of just 57 days,” said Mike Greeff, the chief executive of Greeff Christie’s International Real Estate. The company operates in affluent suburbs such as Claremont and Newlands in Cape Town.

Analysts say the slowdown in Cape Town can be seen as a correction because housing prices there have outstripped the rest of the country in recent years. Samuel Seeff, chairperson of Seeff Properties, says price deflation in Johannesburg is lower than in Cape Town because the coastal city had experienced unprecedented capital growth when compared with the rest of the country.

“What happened there was a spike in the Atlantic Seaboard and City Bowl over the past three to four years where their capital growth outstripped the rest of the country by a very significant percentage.”

He said Cape Town price declines are in line with cycles seen in the property market.

“When a market moves out of kilter with the rest of the markets or the rest of the country, and it grows much more, it can only do so at a quick pace and at a level it did for so long before just the general nature of supply and demand catches up and it has to take a breather,” he added.

“What is happening now because of the political uncertainty and the economic climate, [is that] demand has dwindled down significantly and therefore it’s impacting that particular area [Cape Town] much more than the rest of the country.”

FNB economist Siphamandla Mkhwanazi says the latest data “marks the slowest growth rate since the end of 2009 in Cape Town”, but it comes as “no surprise, given the generally weak economic fundamentals and house prices that have for some time far outpaced income growth in the region and thereby eroded affordability”.

Analysts say buyers are choosing to purchase more affordable homes. The trend, according to the FNB report, is that in a bid to mitigate the effects of a weaker economy, individuals are buying down to stay afloat — or people are selling their properties and moving to other countries. According to the FNB note: “Purchasing activity in the lower price range also found some support from higher-income households acquiring buy-to-let properties in the lower price segments.”

Affluent areas in Johannesburg such as Sandton have dipped by 1.4% year-on-year in the second quarter of 2019 from -0,9% in the same period last year while those in parts of Northcliff slid by an annual 0.4% in the second quarter as compared with 0.9% in the same period last year.

Jonathan Kohler, the chief executive of the Lansdowne Property Group, which operates in areas such as Lonehill and Fourways in Sandton, says “we are finding that the sellers’ market is extremely difficult at the moment — especially in the higher-level asking prices”.

“Your typical Sandton cluster homes in the R5-million to R6-million range are not moving at all and that is driving the property price down,” he said.

The FNB report shows that sellers in affluent areas around the country are lowering their asking price in response to lower demand. The data shows the intensifying extent to which sellers in Cape Town are dropping their asking price — by 8.2% in the first quarter to about 12% in the second quarter.

FNB says these conditions favour those people who have the means to buy property. “We are starting to see bargain hunters buying properties in the affluent areas. Buyers who have credit or cash are taking advantage,” Mkhwanazi said.

Greeff Christie’s International Real Estate says it is aware that property sales are slower than normal, but there is a silver lining.

According to Greeff, serious sellers are relooking at their initial asking prices and are willing to revise them.

“We have found that there are still, and will always be people looking to buy in the same way that realistic sellers continue to sell,” he said.

Tshegofatso Mathe is an Adamela Trust business reporter at the Mail & Guardian

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Tshegofatso Mathe
Tshegofatso Mathe is a financial trainee journalist at the Mail & Guardian

Related stories

Fix economy: Cut, build, tax

Expert panel presents a range of solutions to the economic crisis that include cost cutting, infrastructure spending and a solidarity levy

How Africa can curb illicit financial flows to strengthen economies post Covid-19

The AfCFTA is set to be implemented at the same time as the globe tackles post-Covid-19 recovery. Deeping continental integration can help to boost economies, particularly if stemming illicit financial flows is prioritised

Infrastructure key to economic recovery — Ramaphosa

The governing party wants localisation at the centre of its infrastructure-led strategy

The economic effects of racism are more deadly than Covid-19

A recent report shows that racism has cost the US economy $16-trillion in growth over the past two decades. If the financial-services industry wants to show that Black Lives Matter, it needs to rethink how it allocates capital

E-payments for the unbanked are booming

The pandemic is providing mobile phone network operators with a unique chance to partner with fintech firms and banks to deliver clever e-commerce solutions to the informal sector in Africa

Why insurance firms’ earnings are down

Covid-19 has hit the insurance industry especially hard

Subscribers only

The shame of 40 000 missing education certificates

Graduates are being left in the lurch by a higher education department that is simply unable to deliver the crucial certificates proving their qualifications - in some cases dating back to 1992

The living nightmare of environmental activists who protest mine expansion

Last week Fikile Ntshangase was gunned down as activists fight mining company Tendele’s expansions. Community members tell the M&G about the ‘kill lists’ and the dread they live with every day

More top stories

Khaya Sithole: Tsakani Maluleke’s example – and challenge

Shattering the glass ceiling is not enough, the new auditor general must make ‘live’ audits the norm here in SA

State’s wage freeze sparks apoplexy

Public sector unions have cried foul over the government’s plan to freeze wages for three years and have vowed to fight back.

‘Veteran’s stripes’ vs ‘kind and fair’

This weekend the Democratic Alliance will choose between two starkly different visions for its future

The high road is in harm reduction

While the restriction of movement curtailed the health services for people who use drugs in some parts of the world, it propelled other countries into finding innovative ways to continue services, a new report reveals

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday