Overall, 2019 is proving to be another year of tepid economic growth (see chart below), resulting in yet another year in which government revenues have disappointed – placing additional pressure on the country’s financial situation and in turn, on consumers.

 

SOURCE: SA Reserve Bank

SARB GDP growth forecast 2019 = 0.6%, 2020 = 1.5% and 2021 = 1.8%

Until there is greater clarity on the prospects of a recovery in the local economy, the housing market, which remains resilient but is currently weighted in favour of buyers, is unlikely to enter another fully-fledged recovery. The recent recurrence of load shedding, ongoing socio-political challenges and a volatile global environment have created further headwinds.

It is also important to keep in mind that the ongoing turmoil created by Brexit, the brewing trade war between China and the US and the downturn spreading across Europe is raising the very real threat of a global recession. It was recently noted that the Wall Street Journal’s uncertainty index rose to a record high in August. This suggests that financial markets are currently more uncertain than was the case after 9/11, the European debt crisis and Trump’s election. Current estimates suggest that there is a 30% probability of a global recession.

Notably, Professor Francois Viruly (UCT), recently pointed out that it is not the depth of the slowdown that is hurting the property market this time but rather the length of time the economy has remained sluggish. Continued pressure on consumer household finances, and on property developers, is creating a robust headwind for the market.

However, there is one upside to this sustained period of weak growth. Price pressures from higher global oil prices and/or Rand weakness are having limited impact on the inflation rate, which is stabilising around the mid-point of the inflation target range (3-6%). This means that there is little pressure on the Reserve Bank to raise interest rates. There is even a small chance of a further 0.25 bps rate cut in November this year or in early 2020, but other than that, interest rates are expected to remain steady for an extended period of time.

 

SOURCE: SA Reserve Bank and Statistics SA

SARB inflation forecast 2019 = 4.2% and 2020 = 5.1%

Sales volumes up since Q1 2019

According to Lightstone, although total unit sales slumped in the first quarter 2019 (quite possibly due to load shedding and pre-election jitters) they have since rebounded strongly. Further good news is that conditions in the national property market are, nonetheless, beginning to stabilise. From a low in Q1 2019, unit sales have since risen steadily from 63 887 in Q1 to 73 656 in Q2 to 77 086 in Q3. And unit sales during the first half of 2019 remain just over 11% below year-earlier levels, Q3 2019 sales are 2% above year earlier levels (i.e. above Q3 2018).

The increase in units sold is seen partially as a result of growing competition between financial institutions for market share, resulting in the easing of lending conditions with loans – including 100% loans - being extended at a pace last seen 12 years ago, and generally lower deposits required.

 

SOURCE: Lightstone

One of the signs of banks’ increased appetite for bank lending is the fact that mortgage advances are growing at a faster pace than house prices (see chart below), suggesting that there are more home loans than before – a scenario last seen in 2012. According to ooba, the average interest rate achieved for its buyers in Q3 2019 was 16 bps lower than in Q3 2018.

 

This appetite for lending, combined with relatively low interest rates plus inflation which has surprised on the downside in recent months, reinforces the likelihood that conditions could stabilise.  However, for a more sustained recovery in the market, it will require an improvement in economic growth and employment prospects.

Market activity

However, this is seen against a backdrop which reveals that total housing activity slowed from a peak of 210 465 units sold in 2015 to 196 375 units in 2017 before rebounding modestly in 2018. Sales last year totalled 197 634 units – nearly 13 000 units or 6.1% below the 2015 peak.

 

SOURCE: Lightstone

Of interest is the shift from freehold to sectional title which is evident in the national sales, with freehold properties accounting for 71.2% of all sales in 2010 – declining to 63.1% in 2016 before rising to 65.7% in 2018. (As affordable housing is typically freehold, the shift to sectional title homes is likely to be more evident if one were to exclude affordable housing).

 

SOURCE: Lightstone

According to Lightstone, nearly a third (29%) of all sales across South Africa during the past 12 months (Oct’18 – Sep’19) were in the lowest price band (<R0.4m) while just 16% were between R1.5-R3m and only 5% of all sales during this period was properties priced over R3m. Nearly 80% of all properties sold during the past 12 months were priced below R1.5 million.

 

According to FNB, despite the slowdown in sales volumes, the middle income categories continue to see growth in unit sales from year-earlier levels while the lower and the upper ends continue to contract. The decline in lower end sales can be attributed to a deterioration in affordability high levels of unemployment, while the upper end is presumably impacted by a loss of confidence and the fact that many sellers can afford to sit out the market down-cycle.

 

SOURCE: Lightstone

During the past 12 months (Oct’18-Sep’19), freehold sales have dominated in all price bands – particularly in the <R400 000 category (largely affordable housing) and in the upper price bands (notably >R3m). Sectional title properties account for almost half all sales in the R0.4 - R0.8m and just over 40% in the R0.8 – R1.5m price band.

Interestingly, over the past 12 months (to Sept ‘19), just 9.9% of all sales have been of new properties. And during this period, just over 35 000 vacant plots have been sold – nearly 20% of which (19.4%) were located within security estates. Of all homes sold, 13.5% were located in estates, and of all new homes sold, almost 10% were located in estates.

Price performance freehold vs sectional title

South Africa	Average price (Rm, 2019)	Five years % (2014-2019)	Ten years % (2009 – 2019)
-freehold	1.12	+18.8	+85.8
-sectional title	1.03	+24.2	+51.4

Further to the above, during this 12 month period to September 2019, the average price of a sectional title property sold was R1.07m, while the average price of a freehold property was R1.15m (these differ from the figures in the table above because the figures in the table do not separate out estate homes and are for the year to date rather than the past 12 months).

For the same 12-month period, the average price of an estate home sold was R2.08m – nearly double the average price of a freehold home (although this figure will have been influenced by a large percentage of affordable freehold properties coming on to the market).

According to the Pam Golding Residential Property Index, house price inflation continues to slow.

 

SOURCE: Pam Golding Residential Property Index

While the Standard Bank and PGP House Price Indexes continue to slow, the FNB index has rebounded somewhat in recent months. During the year to date (September), the PGP Index has averaged 3.21%, FNB = 3.54% and Standard Bank = 4.12%.

SOURCE: Pam Golding Residential Property Index

Even as inflation surprises on the downside, the continued slowing in national house price inflation sees real (inflation-adjusted) house price inflation remaining in negative territory this year – for the fourth consecutive year. The one region where real house price inflation remains positive is the Western Cape, which is currently enjoying the seventh consecutive year of positive real house price inflation.

 

SOURCE: Pam Golding Residential Property Index & Statistics SA

For period January to September 2019

PGP Index (average ytd)	Average HPI (nominal)	Average HPI (real)
National	3.21	-1.06
Western Cape	5.78	+1.51
Gauteng	2.43	-1.83
KwaZulu-Natal	3.15	-1.11

SOURCE: Pam Golding Residential Property Index & Statistics SA

Regional trends

Notably, the Western Cape housing market has enjoyed real growth in house prices since late 2013, when it began diverging from the rest of the South African market, While the rest of the national housing market was experiencing a downturn, the Cape benefited from the influx of older, more affluent home owners as the semigration trend intensified.

However, from late-2017 until early-2019, the Western Cape housing market – though still outperforming the other major regional markets – experienced slowing house price inflation, bringing it back into line with the rest of the country.

While the recent revisions by Lightstone have removed an earlier rebound in national house price inflation, the Cape market appears to have reached a modest turning point, with house price inflation rising from a recent low of 4.97% in May 2019 to 5.12% in September (see below).

 

SOURCE: Pam Golding Residential Property Index

According to the PGP Index, price growth in Gauteng continues to lose momentum, while in KZN prices appear to have stabilised.

PGP House Price Inflation (Jan-Sep 2019)
	average	< R1m	R1m - R2m	> R2m
South Africa*	3,21	5,40	2,55	0,79
Gauteng	2,43	4,79	1,66	-1,05
Western Cape	5,78	12,60	5,10	0,00
KwaZulu-Natal	3,15	5,02	1,88	-0,22
SOURCE: Pam Golding Residential Property Index * SA national price band R2m - R3m, >R3m not represented

 

SOURCE: First National Bank

Lower price band is top performer

Breaking the lower price band down further, FNB shows that the sub-R400 000 price band is currently enjoying double digit growth, remaining the top performing nationally and across all major regions. According to the PGP Index, the Western Cape continues to show the strongest growth across all three price bands. The top price band is weakest in Gauteng while the lower price band is still registering double digit growth in the Western Cape, which suggests a high demand and shortage of stock.

 

SOURCE: Lightstone

In the Eastern Cape, house price inflation also appears to be stabilising at a level of 3.37% after slowing over the past year, having averaged 3.43% during the first half of the year (latest available data). Eastern Cape house price inflation continues to outperform the national average by a small margin (0.24% average) during the first half of the year.

Positively, the Northern Cape is experiencing a rebound in prices, from a low of 1.32% in August 2018 to a high of 2.73% in June 2019 (latest data).

Metro housing markets

The three coastal metros continue to outperform the national market, with Cape Town remaining the top performing metro while Johannesburg (and Gauteng overall) remain the weakest.

 

SOURCE: Lightstone

The rebound evident at a regional level (data to September 2019) is not yet visible at the metro level (June 2019 latest data). Nevertheless, house prices in both Cape Town and Tshwane metro markets are showing tentative signs of stabilising (see below).

 

SOURCE: Lightstone

Metro housing markets in Gauteng, which is the weakest of the major regional markets, are showing diverse trends.

 

SOURCE: Lightstone

The slowdown in Johannesburg is rapid and is showing no sign of slowing or stabilising. Tshwane, as noted above, appears to be turning upward while Gauteng East is losing momentum but remains the top performing metro market in the region.

 

SOURCE: ooba

South Africa’s demographic profile means that young, first-time buyers provide a solid underpinning to the residential property market. So it is encouraging to see a marked rebound in the percentage of loans extended to first time buyers in September2019 (51.4%).  For the year to date (Sep’19) just over half (50.2%) of all loans extended by ooba have been to first-time buyers.

Further evidence of the appetite for home loans is visible in the improving loan conditions – with the average rate of concession falling below prime three times thus far this year. For the year to date, the average concession is just 0.04% above prime – the best rate charged since January 2011.