HEIBERG ESTATES NEWSLETTER: JANUARY 2023
Dear Property Partners
Although the first month of 2023 is on its back, please allow me and my Heiberg Estates Team to wish you all a very happy, exciting and prosperous New Year!
With a new but most probable very challenging year ahead of us all, we can truly say that in our beloved but rollercoaster country, there is never a dull moment. Especially with the Eskom train still seemingly on its way to nowhere, and further getting off it’s tracks day by day. Not to mention the latest announced alarmingly high electricity price increase that will have a ripple effect across our economy and amongst all spheres of our economic battered nation.
The SA Reserve Bank interest rate increase by 25 basis points last week, is the eight consecutive rate hike since November 2021 and brings the prime lending rate on a home loan to 10.75%. With our high inflation rate and the yearly headline inflation forecast to remain above 5%, it is widely expected that interest rates will remain high for the foreseeable future whilst our GDP growth 2023 forecast is at an alarming low 0.3% – this prediction due to extensive and continued load shedding, fuelling inflation and enforcing other logistical constraints and challenges across our whole economic spectrum.
We need to be realistic regarding property prospects for the year to come and it is indeed widely expected that the cumulative 375 basis point interest rate, will further enhance property slowdown as has been the trend over the past 6 to 12 month period – both in sale volumes as well as price increases, the latter taking a battering. It is also most likely to sustain a similar pattern across our commercial property spectrum.
It is interesting to take note that worldwide interest rate increases in most countries, have had a negative impact on property markets across the board which led to international gradual weakening real estate patterns, as the present status quo reflects in our own country. Furthermore it is widely expected that a worldwide recession is inevitable with economic growth slowdowns reported across the world. One of the latest International Monetary Fund reports, state that more than a third of the world economic growth will decrease – from the 6% recorded in 2021 to an expected 2,7% this year, the lowest since 2001 except for the financial crisis in 2008. For sure not good news for our country, desperate for much higher economic growth in order to expand our economy and create desperately needed sustainable jobs – also to broaden or fragile and very limited, small tax base that in addition has to carry the extended socio-economic challenges in our country.
Property demand is visibly on the decrease where our market is to a big extent credit driven and affordability has taken a huge knock due to the rising basic costs of living as well as the cost of servicing debt/loans.
Some of the latest interesting facts and statistics, as follows:
- We are observing a growing number of potential property buyers, are rather opting to rent than buy whilst waiting for interest rates to come down again. Affordability has taken a huge knock under especially the lower- and medium property price ranges.
- House price increases in general are under continued pressure and a recent Rode Report points out that house prices recorded during the 4th quarter 2022, were only 3.2% more expensive than a year before – unfortunately not keeping up with the average 2022 inflation rate of 6.8%.
- The SA Reserve Bank predicts our average inflation rate for this year is going to be 5.4%, for 2024 4.8% and 4.5% for 2025. Inflation to be closely observed as it will also determine when interest rates can be adjusted, not to disregard that the SA Property Market is very volatile due to our high and continued prime lending rates which is expected not to be lowered in the foreseeable future.
- Interesting to note that the number of concluded sectional title unit developments, was 25% higher during 2022 in comparison to 2021. It is however widely expected due to factors as mentioned above, that developers are continuing to be very careful to increase development property projects for the year to come.
- Rental property demand is increasing due to affordability limitations to buy, and we at Heiberg Estates are already observing a growing demand for rental properties with good locations close to schools, universities, shopping centres and good public transport systems.
- The percentage of empty standing flats/sectional title units, is also on the decrease where in the fourth quarter last year it was recorded at 6.8% versus the 7.8% the previous quarter but still higher than the 5.3% vacancy rate recorded in the 3 years before Covid. However, it is still advisable for Landlords to keep their expected monthly rental amounts realistic and as low as possible in order to find good tenants and to avoid unnecessary vacancies.
- In a recent FNB Commercial Property Market report, it is indicated that the Retail-, Industrial- and Office property segments are expected to be weaker in 2023 compared to 2022, with offices still remaining to be the underperformer, industrial the relative performer and retail somewhere in the middle. Average capital value/m² of Commercial property is expected to shift back into slower nominal growth but “real” (inflation-adjusted) decline.
- Without doubt electricity supply (or rather the lack thereof) and its rising costs, will have a continued impact on our SA Property Market’s performance this year. Especially looking at the Commercial sector where the negative impact of load shedding is taking its toll with its direct impact on escalating operational costs. Property owners have to make costly additional provision for electricity back-up systems and for some time now price sensitive and cash restricted tenants, due to all around economic challenges, are prone to escalating monthly rental price increases.
It is inevitable that we will increasingly see credit-dependent property buyers to delay this process until the interest rates are lowered again whilst in the meantime being forced to sit on the side line whilst renting. This without any doubt resulting in lower sale volumes and lower property price increases. General investments in our economy and country will remain under pressure due to weakening investor confidence and with the lower than expected 2023 economic growth. Load shedding has a direct and ripple impact throughout our fragile economy and it is predicted to be as much as -2% on our yearly economic growth rate.
Let’s make it a new year’s resolve to remain to be focused, diligent and choose to do as much as possible in our respective fields of specialisation, to create positive change and progress in whatever we do. Our country needs progress, our people needs hope, jobs are desperately needed and change starts with each and every one of us – it is a choice!
We are truly looking forward to do business with, our much cherished and appreciated clients this year! Please be assured of our dedication and commitment to assist you in finding good and solid property investments!
With very best wishes and always remember – we are on 24/7 standby for you!
www.heibergestates.com / scan our Qr code to visit our website:
Yours truly
Bambie & Heiberg Estates Team
