Absa’s Home Loans Property analyst, Jacques du Toit, states that last month, Absa’s house price index recorded its lowest growth level in four years and that he expects house price growth for 2016 and 2017 to remain in the narrow range of 4-4.5%, down from an average of 6.1% in 2015 and 9.3% in 2014.
Du Toit’s conservative growth outlook for this year and next year means that house prices are set to drop in real terms by 1.5-2%, taking into account the outlook for headline consumer price inflation of 6.4% in 2016 and 5.5.% in 2017.
FNB property strategist, John Loos, says the slowdown has been most pronounced in the middle and upper income segments, typically priced between R1.5-3m. Loos notes that the upper end of the market has been hit by higher effective income tax increases, large municipal rates and utilities tariff hikes, as well as transfer duty increases for properties over R2.25m. He comments that sales volumes have also declined across all bands, with a year-on-year decline of -2% for the first six months of this year and that it is taking a lot longer to sell homes.
From a provincial perspective, Gauteng now trails well behind Cape Town in the price growth stakes, due to perceptions that the Western Cape offers a better lifestyle and is better run from a local government perspective. However, Loos says a slowdown in activity has also been noticeable in the Cape in recent months.
According to RE/MAX of South Africa CEO, Adrian Goslett, cash will “become king” in the medium term and buyers who have access to the necessary resources will benefit at the closing table. However, should the country be downgraded next year, access to finance will become more expensive and interest rates will soar. Nevertheless, for the time being, buyers are adopting a wait-and-see approach, resulting in an industry-wide dip in sales volumes of an average 15% year to date.