HEIBERG ESTATES NEWSLETTER: AUGUST 2022

Dear Property Partners

August is a traditional dusty, windy month and this is also clearly reflected in our property market, where the winds of change in property investor behavior, are already visible in all property sectors. This course of events worldwide gained momentum due to increases in inflation, interest rates, fuel prices, and basic costs of living and thus reflected in dampening property investors’ appetite. Higher living costs are eroding affordability whilst there are talks of an approaching 2023 global recession, coupled with further escalating geopolitical tensions. Our own political- and economic challenges, are not to be disregarded in the total picture.

The growing hesitancy amongst Buyers in the wake of yet further expected interest rate increases after the recent .75 basic point and 5^th interest rate hike as inflation accelerates is contributing to an expected broad front property demand slowdown with accompanying general downwards property price pressure.

The headwinds we have been facing for some time now actually already started with Covid-19 and the widespread international impact it has had across all economic sectors, followed by yet another blow with the Russian invasion of Ukraine. In South Africa, a further hurdle to cross is the electricity supply crisis, which is undermining consumer and business confidence, causing further uncertainty amongst both local- as well as international property investors until such time that the delivery of basic services, can again be expected as the norm. This spate of events of course also impacts heavily on our construction industry and limits planned new property developments where many projects are being shelved.

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

• Building costs have increased significantly since last year and are calculated year-on-year at 12.9% – this furthermore contributes to more developers taking a wait-and-see stance and shelving planned developments for the time being. Especially in a still oversupplied office- and retail market sector.
• Looking at the recent second quarter new residential building plan application approvals, the anticipated slowdown reflecting rising inflation and interest rates, is well visible in the recorded 10.6% year-on-year slowdown.
• A recent FNB Report points out that there is still good news in that the building number unit completions still increased by 18% year-on-year as recorded during the second quarter this year. However, interesting to note that the number of units completed, was -28.2% below the second quarter of 2019.
• The most affordable housing segment (houses smaller than 80m²) showed the best growth in approved plans of 24.6% and dwellings larger than 80m² recorded a much lower 5.1%, with flats and townhouses recorded at 10.9%. The latter being the fastest growing category over the past two decades.  
• According to the FNB House Price Index, house price growth declined slightly during July and averaged 3.3% year-on-year from the 3.6% recorded during June. This is also due to declining demand with affordability gradually eroding due to rising interest rates, living fuel- and other basic living costs.
• The latest FNB Non-Residential Building Statistics report points with the renewed economic pressures of late, that commercial interest is further slowing down. Commercial building plan approvals are on the decline where year-on-year to June this year there was a decline of approved plans of -9.8%. The square meters of commercial plans in general approved were still -28.7% below the 12 months to June 2019 and -40.1% down on the total passed for the 12 months to June 2018!
• Alarming when looking at recent commercial building completions, where a year-on-year decline in the second quarter this year of -12.13% was recorded – this after a 105.08% increase recorded during the 1^st quarter.
• Regarding the Office Sector and with the changes that Covid-19 brought along regarding the escalation of remote and from-home work, June year-on-year statistics showed that the square meterage of office plans passed, declined by -69.9%!
• In comparison for the 12 months to June this year, the square meterage of retail space plans passed was down -by 39.67% and is not expected to pick up soon due to challenges on a broad front, especially looking at constrained consumer confidence and declining affordability. The latter is illustrated by only about 62% of retail tenants being in good standing with their landlords regarding rental payments looking at the past two quarters.
• It is still the Industrial Sector that is outperforming the other two sectors with the boost it receives from ongoing online retail levels and growing demand for logistics and warehousing. How long this scenario will continue due to worldwide and local economic uncertainties, will need to be seen and it is expected that this sector will also start to slow down soon.   

With talks of an imminent global recession, geopolitical tensions spreading, also local ongoing economic pressures and political challenges in our own country, coupled with rising inflation, interest rates, and unemployment, it is expected that our property market will continue to be prone to downwards pressures on all fronts and across the board. Upwards pressure on capitalization rates is expected to continue until at least the end of this year.

Our property market has always remained to be resilient under all circumstances and we are optimistic that the demand will always remain to be there, especially for well-located properties presented at realistic, market-related selling prices. Our financial institutions are also coming to the table where they are eager to do business and are more lenient towards lower deposit requirements which will continue to be one of the main drivers towards ongoing demand and successful sales. Mortgages as a percentage of the purchase price are reported to be at the highest level in over a decade.

Worldwide, historically the property market has proven itself to be less volatile than the stock market, especially in more difficult economic circumstances. Where the property market’s diversity and numerous opportunities over a broad front present itself as a wealth-building asset class, it is no wonder that it will always remain to be regarded as a safe haven to invest your money in, especially over the medium- to long-term. Many property investors buying-to-let, has multi-benefits as not only are their tenants paying off their loans over a certain period of time but during this period there is also investment and property price growth with tax benefits by writing off the interest paid against the bond as well as maintenance and other costs against the rental income generated.  

Let’s keep the focus on the half-full glass with decades of proof that property is and always be one of the most important investments to build sustainable wealth and that is where our Heiberg Estates Team remains to be on 24/7 standby to address all your property enquiries and needs! Please call us any time and visit our website:

With best and warm wishes

Sincerely

Bambie & Heiberg Estates Team