HEIBERG ESTATES NEWSLETTER: MARCH 2023
Dear Property Partners
With increasing challenges covering every sector of our economy and with the Financial Action Task Force’s decision to grey list SA, the much higher than expected SA Reserve Bank interest rate increase of 50 basis points as announced yesterday, is a further huge blow to all of us as well as our under pressure and fragile property market! The extended impact will without any doubt be felt en visibly seen throughout our property sector, and for some the time to come. The continuous slowing trend in property market activity as observed over the past 12 to 18 months, as well as in general declining property values and sale volumes, reflects the weakening demand and the impact of higher borrowing and debt-servicing costs, coupled with ever increasing basic day-to-day living expenses.
The 0.5% repo rate increase by the SA Reserve Bank in their bid to contain our high inflation rate as well as curbing the knock-on effects of our weaker Rand exchange rate – where it has weakened with about 7% against the USD so far this year – is much higher than the initial widely .25% expected increase. The last hike brings the prime rate to 11.25% and is the highest level since 2009. Our average inflation rate expectation this year, is around 6% (whilst being recorded at 7% for February) and is well above the central bank’s target band of between 3%-6%. When interest rates ever again are going to be reduced is an open question and all these uncertainties are also having a big impact on especially a huge percentage of property developer’s appetite to develop, already sitting on the sidelines and waiting for better days to come… It is estimated that the construction sector has already declined by 25% in the past year. Furthermore the incidents where construction sites are being targeted by the “construction mafia”, where extortionists target and harass construction workers on site if their exorbitant “protection money” demands are ignored, are on the increase and this further adding to development challenges.
Our rising interest rate trend has since November 2021 already increased by 425 basic points or 4.25% and puts the prime rate up to 11.25%. This, coupled with increasing food-, fuel and other day-to day expenses limiting affordability , the negative impact of load shedding and so many more other broad-based negative factors, will further add to property demand slowdowns and especially looking at our commercial property sectors. With a lower-than-expected recent GDP figure released by StatsSA – which measures our economy’s production of all goods and services – a continuation of lower demand for commercial property space whether to rent or to buy, will lead to rising vacancy rates most probably for the remainder of the year. A recent published FNB Commercial Property Report pointed out that real GDP growth slowed from a 3rd quarter year-on-year rate of 4.23% to a low 0.92% recorded in the 4th quarter last year and this trend is not expected to improve significantly during the remainder of this year.
Some of the latest interesting property facts and statistics:
• All sectors of our SA Property Market are under downwards pressure looking at price as well as sale volumes. A recent published FNB House Price Index, reports that annual residential property growth decreased in February averaging 2.3% year-on-year, whilst showing a month decline of 0.4% in comparison to January.
• On the residential front Buyer’s demand and activity is declining looking at general enquiries as well as our declining show house attendances. With lessening demand, it is also impacting on the successful sale period as the national average-time-on the market before sold statistic, show an increase to 75 days before being sold in comparison to the 69 days recorded during the last quarter of 2022 – this extended time period last recorded during the third quarter 2020. Around 50% of properties on the market for sale, take three months or longer which is an increase of 33% in comparison to the first quarter last year.
• It is expected that with the weaker residential property demand, decreasing sale volumes and lower price increases, house prices increases will average a low 2% this year versus the 3.5% and 4.2% price increases recorded in 2022 and 2021 respectively – market strength indicators show waning housing market resilience, in line with increasing pressure on household budgets, weaker economic fundamentals and declining buyers sentiment.
• Interesting to note that people forced to sell due to financial pressures, contributed to 17% of all sales as recorded during the first quarter, but was recorded at 22% in the affordable market which is indictive of the financial pressure on the lower income market segment.
• Emigration-related sales remain to be around 9% which is much lower than the 18% recorded in 2019.
• Interesting to note that semigration related sales due to a new trend towards remote working that was mainly brought about during and after the Covid period, increased from 8% during the first quarter of 2020 to 13% recorded during the first quarter this year, and people are increasingly moving from Gauteng to the Western Cape.
• During challenging economic times people upgrading their properties, are declining and this is noticeable as it declined from 17% recorded in the second quarter of 2021, to 10% recorded during the first quarter of this year.
• Commercial properties remain to be under siege due to general waning interest causing increases in rising vacancy rates, and downward pressure in price and sale volumes. Also to note that our environment of economic stagnation plus consistent load shedding complications, make operating costs much more challenging. Escalating Municipal rates and tariffs effect both Landlords as well as Tenants more than ever before, whilst available commercial space is in abundant supply. Big shopping centers easily use 80% more diesel for generators than a few years ago and bigger malls report diesel accounts that run into tens of million of rands just to keep the lights on. Growthpoint has spent in the past 14 years an estimated R500 million just on generators and photovoltaic panels, whilst Redefine reports its cost for alternative energy supply at R352 million.
• The declining number of approved building plans passed on the commercial front, also underlines the decline in commercial building activity where StatsSA released in a recent report, stated that out of the total m² of industrial-, retail- and office space building plans passed, there was a sharp -59.34% year-on-year decline in January 2023 after a much lower decline of -2.92% recorded in December 2022.
• This trend is repeated in the residential building sector where in January 2023, a year-on-year decline on the number of unit plans approved was recorded at -41.1% versus the 22.16% decline recorded for the previous 3 months to December 2022.
In short and taking all the factors as pointed out above into account, the reality of our economic stagnation, pressures, and challenges are becoming very visible in each and every sector of our property market. The only really constant forward moving property market, is that of the Western Cape – for obvious reasons.
But every dark cloud has a silver lining and irrespective of what stage of our economic and property cycle we are, there will always be demand for properties. Excellent opportunities in this existing Buyer’s market are presenting themselves for those that consider property investments with a longer-term outlook.
Please don’t hesitate to call us to touch base and to discuss the present market or your specific property needs whether short-, medium or long term. It remains to be a privilege to share our extensive property expertise with you, and we are ready to support you in whatever way it may be. Never too late or too early to invest in properties!
Best and warm regards
Sincerely
Bambie & Heiberg Estates Team
