HEIBERG ESTATES NEWSLETTER JUNE 2022

Dear Property Partners

It is becoming more clear by the day that across the board, activities in the SA Property Market is on the gradual decline. Several factors at play here, especially after the very deep recession of 2020 and with a rather lethargic property market scenario brought about by the extended Covid-period. Our Property Market was just picking up momentum again when a series of interest rate increases hit hard and dampened the spirits across all sectors of our property market.

As pointed out by a recent published FNB Property Market Survey, global supply chain disruptions had been contributing to building global inflationary pressures, whilst the ongoing war in the Ukraine and resulting sanctions and boycotts on Russia, have increased global inflation, and put additional pressure on property prices across the world. This very visible in our own economy where since late 2021, our SA Reserve Bank (SARB) has had no option than to put op the repo rate resulting in 125 basic point interest rate increases and with a further 100 points increase expected until the end of this year – increasingly putting downwards pressure on real estate market activities and property prices. Interesting to note that throughout Europe, interest rate increases are recorded on an ongoing basis whilst in the USA, the FED announced its highest interest rate increase in 28 years when the interest rate was increased by 75 basic points – the USA inflation rate recorded in May at 8,6%, the highest since December 1981.

Our rapid rising inflation rate, which was recorded at 6,5% in May after it was recorded at 5,9% during the previous two months, is the first time above the ideal SARB inflation band top limit of 6% since 2017. Some of the biggest contributing factors, being the alarming increase in food- as well as fuel prices where food prices over the past year increased by 29% and fuel prices by 32,5%. Some leading economists are already predicting that inflation can go up to as much as 8% this year before stabilizing again. All these factors very definitely having a major impact on our property market with inevitable more expected interest rate hikes, resulting in dampening affordability covering all sectors of our property market.

Some of the latest interesting facts and statistics, as follows:

• The FED’s recent interest rate increase by 75 basic points in the USA which is highest increase since 1994, is not good news for SA borrowers as this same 75 basic point interest rate increase is, is widely expected to probably be announced by our own SARB after its next meeting – also having further negative impact on our fragile property market across the board, where the prime lending rate then will be 9%. Furthermore international investors might be lured to rather invest their money in the USA than here, which will be a further huge blow for our rand exchange rate as well as our very low economic growth rate as we desperately need foreign investments in order to create sustainable jobs and to broaden our tax base. All of the above inevitably limiting South Africans abilities to invest in property whether it is a first time buyer, a top-end buyer or an investor in the commercial sector.
• The interest rate hike that started last year and is continuing, has been a key influence in starting to dampening real estate market spirits. At this stage there are predictions that the repo rate could increase to 6,5% towards January 2023 and the prime lending rate of our financial institutions to 10% which it was at the end of 2019. With further rapid inflation rate increases expected to be announced for June and to be continued during July/August due to further fuel price and basic monthly living costs increases as well as disruptive continued load shedding ahead of us, this scenario seems more likely by the day.
• On the Commercial front a recent published FNB Property Report points out that observing the second quarter of this year, property activities in 2 of the 3 Commercial property sectors began to weaken and it was only still the Industrial Property Market that showed some strengthening.
• A recent SAPOA report causes great concern regarding our Office Property Sector. It is indeed heartbreaking to take note that existing vacant office floor space, equals that of around 24 800 two bedroom units if it was converted into living residential units, whilst the estimated 3,1million m² empty standing office space is enough space to fill 21 Sandton City or 22 Canal Walk Shopping Centres!  
• At the end of the first quarter this year, B- and C-grade office vacancies were respectively recorded at 19,9% and 16,4% – the highest ever.
• Taking the huge supply of empty standing office space, yearly rentals unexpectedly did go up but in low, average single figures of around 1,23% – the lowest average yearly increase ever recorded, whilst in comparison the yearly increases in e.g. 2015 was 5,28%.
• Economists are now also warning against stagflation with a combination of high inflation, decreasing economic growth, and an increase in unemployment and poverty. The last stagflation period was recorded in the 1970s where the only way to curb it, was to increase interest rates.
• Our expected economic growth rate for this year is a low 2,1% and predictions for next year a very low 1,5% whilst in comparison 4,9% last year. The worldwide average expectancy is a mere 3%. These predictions are not bearing well for our rising unemployment rate, where 1,4m less people had jobs recorded during the first quarter this year versus the 1^st quarter in 2021, and where the extended unemployment rate at the moment is calculated at about 45,5%.
• At least on the home rental front there is some buoyancy where residential rental growth was the strongest since the start of the Covid-19 pandemic. The average national rent as recorded by PayProp was 1.8% higher and recorded at R7 958 during the first quarter of 2022 compared to the first quarter of 2021. It was also the first time rental growth exceeded 1% since the third quarter of 2020.
• The Construction sector is visibly paying the price for rising costs, economic uncertainties, rising interest rates and so forth where activities decreased by 25% compared to the same time in 2019 and where an alarming 60 000 employment opportunities were lost as recorded over the previous quarter this year only. The increasing void in new infrastructure-, commercial- as well as residential developments, is visibly taking its toll in this sector.  

We are all so happy that hopefully the mask wearing era has come to an end now whilst economic and social life is more or less getting back to normal again. But unfortunately economic headwinds are for sure gaining momentum. As mentioned our ever monthly increasing food-, fuel-, municipal services prices have become very noticeable in basic monthly cash flow abilities and widespread lessened general affordability to buy property, whilst with the expected series of further interest rate increases, prospective buyers are indeed keeping their options open.

We are picking up a growing trend amongst prospective property buyers where they are now rather taking a wait-and-see-first attitude, before committing to buy and we expect to see a further decrease in sales activities throughout the whole SA Property Market spectrum for the remainder of 2022, putting downwards pressure on property prices.

But – whether you are a Seller or a Buyer – golden opportunities always exist and that is where the well-seasoned and professional Heiberg Estates Team with collectively more than 50 year experience in sales and rentals, are there to assist and guide you! So please contact us for any advice or free property assessments you might need. We remain to be 24/7 on duty for any sale, buying or rental assistance you might need!

WE URGENTLY NEEDPROPERTIES FOR SALE AS WE ARE VIRTUALLY SOLD OUT!  PLEASE CONTACT US SHOULD YOU WISH TO SELL, OR KINDLY REFER US! IT WILL BE DEEPLY APPRECIATED AND RECOGNISED!

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With warm and best wishes.

Bambie & Heiberg Estates Team