HEIBERG ESTATES NEWSLETTER: JULY 2022
Dear Property Partners
As predicted in our previous Heiberg Estates Newsletter and as published in June 2022, the SA Reserve Bank (SARB) increased the repo rate by 75 basic points to 5.5%, and with our prime lending rate now at 9%, which is the biggest increase since 2002 and the 5th consecutive increase announced by the SARB. This decision although expected, came as a shock and was not well received by the general SA Property Market. Unfortunately, more hikes are expected to follow in the months to come with our increasing inflation rate, lower-than-expected economic growth rate, and ever-increasing daily costs of living- as well as fuel prices. With the changing repo rate, it affects capital flows and affordability, impacting on the supply and demand chain across all property market segments. Furthermore, the 7.4% inflation rate recorded in June (the highest in 13 years) and up from 6.5% as recorded in May, points to an expected and soon-to-be 8% inflation rate.
Logically the above mentioned will have an unavoidable negative impact across all SA Property Market Sectors, resulting in downwards pressure on property prices (price growth has slowed down to between 2% and 4%) as well as lower sales volumes. Fortunately, our property market has always proven itself to remain resilient under all circumstances. Although we are expecting the interest rate hike cycle to continue with the prime lending rate to increase to 10% within the next few months, we still have a very supportive and bank lending climate where due to fierce competition to increase market share, banks are still offering favourable rate concessions and lower deposit payments as a percentage of the purchase price required. But – in order to sell, Sellers will have to adapt to present very sensitive and price competitive market circumstances in offering their properties at market related prices. Buyers are well informed, they buy by comparison and have direct access to property-related information over a broad front.
Some of the latest interesting facts and statistics:
- A definite indicator that our property market is slowing down in this very challenging economic state of affairs, is the rapid decline in the approval of building plans as reported by StatsSA. There was a year-on-year decline in the number of plans for residential units approved, of -11.06%. Just in the flats and townhouses category, this decline was recorded at -26.6%. And this trend expected to be continued across the residential building sector the foreseeable future.
- In the Commercial Sector the above pattern was reversed where the square meterage of total industrial, retail and office space building plans approved, increased by 29.5% as recorded year-on-year May 2022, but this mainly driven by Industrial property developments.
- Encouraging to note that the demand for buy-to-let properties as a sound investment, has been on the increase – as reflected by the 7.8% of total loans granted by ooba during June 2022 – the highest level recorded since May 2010!
- The increasing interest rate and other factors as mentioned, are forcing many prospective Buyers back to rent for the time being and a recent TPN report points out that the residential rental vacancy rate that was recorded at 13.31% a year ago, has not decreased to 8.26%. According to this TPN report, the average return on investment in sectional title properties was recorded to be 10.1% and on full title properties 7%.
- Looking at our Office Market with still a nationwide oversupply in this sector, a huge percentage of companies are continuously re-evaluating their office needs whilst downscaling in staff and office space – which also reflects the continued weak state of our economy. Supply still exceeds demand by far, putting downwards pressure on office space rental prices and ROI’s. For the 12 months to May 2022, the square meterage of approved new office space plans, declined year-on-year by -46.7%. Looking further back, it declined with a massive -74.6% since May 2018.
- Industrial Properties remain the highest in demand and the most affordable property class where the emergence of a greater level of online retail, drives the logistics and warehousing demand, especially amongst smaller businesses.
- Regarding the Retail Property Market, factors like economic and political uncertainty, general poor economic performance, rising price inflation and lessening affordability, are putting continuous downwards pressure on this segment. There is a general hesitancy to buy retail properties whilst some investors are sitting on the side lines and playing a wait-and-see game and the tendency is more towards renting for now.
- Interesting to note that on the Residential side, close to 53 000 bond registrations were recorded at the Deeds Office between April and June this year – a 30% increase in comparison to the same period last year and a 45% quarter increase compared to the previous quarter.
- Residential transfers in the second quarter was recorded at 77 880 compared to the 52 241 recorded during the first quarter this year which equates to an almost 50% quarterly increase and a year-on-year increase of 32% which is heart-warming for this property segment. Unfortunately, the long-term effect of our latest substantial interest rate increase on this property segment, is still to be established and for sure going to curb both sales prices and sales volumes as mentioned before.
Demand for real estate worldwide will always remain strong and ongoing, as it is recognized as one of the most important and sound investment asset classes to build wealth, and as such also in our country across all walks of life. Although there is ongoing demand it visibly is becoming much more moderate across all property sectors as people wait and see what the foreseeable future holds.
The upwards pressure on interest rates coupled with weaker near-term prospects for property income as our economy comes under increased pressure, is expected to cause capitalization rates to rise well into the second half of this year. We shall have to be realistic that the next few quarters will be challenging in the SA Property Market, especially with so many dark clouds looming over our uncertain economic- and political state of affairs.
But as we always say: it’s never too late and there are ALWAYS good property investments available, irrespective whether the economy is up and down and it is never too late to make your property investment! So, please call your 24/7 on standby Heiberg Estates Team for any information or service you might need, so please contact us any time!
TO BUY, TO SELL, TO RENT – WE ARE THERE FOR YOU! YOUR REFFERALS MEANS THE WORLD TO US. KINDLY LET US KNOW IF SOMEBODY WANTS TO SELL, BUY OR RENT AS WE ARE RUNNING OUT OF STOCK!
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With our very best and warm wishes.
Sincerely
Bambie & Heiberg Estates Team