HEIBERG ESTATES NEWSLETTER: JULY 2024

Dear Property Partners

The SA Reserve Bank (SARB) decided for the seventh consecutive time to hold the repo rate unchanged at  8.25%, with the lending rate remaining at 11.75%.  It did not give our lethargic and subdued real estate market the much-awaited kick-start that has been hoped for over a prolonged period now. The continued high interest rates will delay and keep a huge percentage of prospective Buyers on the sidelines before committing to long-term property investments.

There are however growing positive signs that an interest rate cut could well be announced within the next few months with our current inflation rate moving downwards and closer to the midpoint of the SARB’s inflation target. The average inflation rate for this year is now expected to be 4.9% and the goal of the SARB is to stabilise inflation around 4.5%. Our inflation rate has averaged more than 5% over the past 10 to 20 years – but it is still much better than the average 15% recorded in the 1980s and 10% in the 1990s.

There are so many factors playing a role in the SARB’s latest decision where globalization, geopolitical tension, and risks as well as our rand exchange rate are some major factors that have to be taken into account. Interesting to note that so far this year rates have been lowered in Canada, Sweden, Switzerland and the European Central Bank, whilst it remained unchanged in the US, the UK, and Japan. The longer the SARB delays its first interest cut, the likely stronger the rand in supporting efforts to lower our high inflation rate. It is expected that the US Federal Reserve will cut rates in September and our SARB is likely and expected to follow suit soon after, bringing much-needed relief to countrywide households. Lower interest rates in the USA, the UK and Europe is good news for our Rand as it is enticing for Foreign Investors to invest here due to the much higher yield.

Whilst our state of affairs is being attended to with a serious approach by the more economy-friendly new Government of National Unit hopefully, renewed investor interest will be triggered locally and internationally to give our pressurized South African Property Market, a much-awaited boost. It is furthermore high time for our interest rates to come down to put some renewed energy and stimulus in our lethargic property market that has been under downward pressure for some time now, especially since the 475 basic point interest hike in November 2021. With interest rates remain moving sideways since May 2023, extremely little economic growth has been recorded for the past almost 3 years due to the general lack of confidence over a broad political- as well as economic front. Our economic growth rate for 2023 was recorded at an alarmingly low 0.6% and this state of affairs continued into the first half of this year with also our inflation still remaining high at above 5%. The SA Reserve Bank is following international trends very carefully and with slowly declining global inflation rates to be followed by lower interest rates (as well as hopefully sustained lower levels of load shedding in our country), it may well lead to a lower interest rate announcement at the SARB’s next meeting to be held on 18 September 2024.   

We are hopeful that in considering all relevant factors, property investor demand should strengthen and pick up renewed momentum during the next few months. With improved real estate balances towards the end of the year as growing general business confidence in the broader economy increases, this should also reflect in renewed property interest with higher sale volumes and moderate property price increases.

Some of the latest interesting property-related facts and statistics are as follows:

• A recent Lightstone report points out that the average number of days a home remains on the market before being sold in our 5 metro cities, has increased from 69 days in 2015 to 92 days this year up to date. Property prices above R3m take an average of 120 days to be sold.
• FNB reports that one of the main reasons for selling recorded during the second quarter, was downscaling due to financial pressure and this accounted for  21.5% of all sales.
• FNB reports that 22% of Sellers are selling to downscale, financial pressure-induced sales were 21% in the second quarter, aligning with the historical average and due to continued high debt-service costs with our high interest rates.
• It is noted that there is a preference among these financially motivated sellers to downsize rather to rent – reinforcing the continued buying-down trend. Upgrading activities slowed down substantially to 11% pointing out growing caution amongst property owners in the current and continued uncertain economic climate.
• Relocation related sales remained steady at 14% but exceeded the long-term average, whilst emigration-related sales remained unchanged at 8%.
• More affordable properties are still by far performing the best where BetterBond records that 35% of loans granted, were to homes valued between R1m and R2m. The average deposit for a home purchase was R320 000.
• Data from TransUnion shows that the number of new home loans increased by 6.7% compared to last year, but the average value of new loans decreased by 6.2%.
• During the past quarter the year-on-year increase in home prices for first-time buyers and repeat buyers, both increased higher than the inflation rate where this increase for all buyers was recorded at 5.6%.
• On the Commercial Front, the Retail Market has strengthened moderately and together with the Industrial Market, are still the best performers. The Office Market, is still struggling with growing vacancies (13.1%) recorded all over the country.
• According to StatsSA new building activities and developments have taken a significant knock. Square meterage of Retail Building plans passed for the 12-month period to April this year, declined by -32.5% in comparison to April 2018, Industrial plans passed were 32% less and Office Plans passed recorded at -71.4% lower than the multi-year high reached for the 12 months to June 2017.

In summary, there is fortunately a noticeable growing stability towards supply versus demand where for the past year, supply exceeded demand by far and those margins are narrowing now. This could lead to gradually increasing sale volumes and higher property prices whilst revitalizing our lethargic housing market. Once interest rates come down and hopefully in September when the SARB is meeting to make its next interest rate decision, a meaningful recovery and demand for residential property could be expected.

For the present moment it remains to be a Buyer’s market and if you are in the market to buy, make that call rather sooner than later. Visit our website at www.heibergestates.com / Scan the QR-code below, or call our Heiberg Estates Team anytime being on 24/7 on standby at 083 654 3773.

With best and kind regards

Bambie & Heiberg Estates Team