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Posted by Heiberg Estates on November 30, 2022


Dear Property Partners

Certainly not what we hoped for and our fragile property market didn’t want to happen, but yet another blow received last week with the latest .75 interest rate increase announced by our SA Reserve Bank, bringing our prime lending rate up to 10.5%. This action due to the SARB trying to control escalating inflation and to bring it back to its midline target of 4.5%.  

Interest rates are now at their highest level since 2016 and has increased by 3.5% since November last year.  There is virtually no hope for interest rate cuts soon in sight as our inflation rate that climbed to 7,6% in October, is expected to remain above the maximum target rate of 6% way into 2023, and with economic growth expected to remain extremely low for the next six to twelve months.

For some time now prospective property buyers have been calculating the continued rising interest rate ripple effect across their whole affordability spectrum, which negatively influenced their property appetite and ability to commit to property investments. This also clearly illustrated by property market activity shifting, and with average listing times before selling that has increased by weeks. The differential between the initial asking price and selling price, is also going up steadily.

Residential- as well as Commercial property interest shown by potential buyers and investors is alarmingly slow for this time of the year, where traditionally it is supposed to be the busiest time in the yearly property cycle with people relocating, starting new jobs, and so forth. General property enquiries and show house attendances have slowed down tremendously as reported and confirmed, by so many of our other professional colleagues at prominent estate agencies.

With the ongoing series of interest rate hikes, buyers are not only extremely price sensitive but also have become very demanding in finding the best value for money, whilst many financial institutions are increasing their strict lending criteria and demanding bigger deposits before granting loan applications. FNB reports that on the commercial front, this year has brought various indications pointing to renewed weakening in consumer-, retail- and retail property fundamentals, following a partial recovery subsequent to the hard Covid-19 lockdowns – not to underestimate the huge impact and ripple effect that the latest .75 basic point interest rate hike will have in the months to come.

Also, a clear indicator of declining interest across the property sector is that building plans handed in for approval at the authorities, have declined. Looking at residential building plans passed, in most categories there were little, or no increases recorded during the 3rd quarter. This slowdown is attributed to the impact of escalating consumer inflation, rising interest rates and ever-increasing financial pressures coupled with uncertainties on both our political- and economic horizons. And for sure not to forget fundamentals like our electricity fiasco.

Our concerning low rand exchange rate as well as global issues, are also affecting decision making over a broad front as with all these combined factors, affordability for the man on the street has been placed under escalating pressures. Affordability will continue to be a big factor across all property sectors and price ranges during 2023.

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

  • The latest interest rate increase was widely expected, whilst it is interesting to note that the long-term historical interest rate in our country, averaged 11.98% over the past 25 years – fortunately, we are presently still below this percentage and at 10.5%.
  • A recent FNB Commercial Property report points out that 2022 has been a challenging year of renewed weakening in retail property-related fundamentals, also very visible in retail property performance itself, following an initial and partial post-lockdown recovery. The slow-down across our commercial property spectrum, visible in both sale volumes and prices, especially in the office- as well as retail markets – the best performer still being the industrial sector.
  • A recent Roode report points out that the housing market has been on the decline for some time now and house prices are expected to grow at a slower rate for the next year or two. During the third quarter of this year, 22% of homeowners had to sell due to financial pressure – up from the pre-pandemic level of 15% as recorded during the first quarter of 2020.  
  • Buy-to-rent demand is growing where there is a new wave of potential tenants becoming much more sensitive to the series of interest rate increases and affordability and opting to rent rather than to buy for the interim period, especially in the lower to medium price ranges – ooba recording a year-on-year 30% rental increase during the 3rd quarter. This trend expected to continue next year as tenants in all property sectors will still be challenged by rising inflation, increasing interest rates and ongoing slow economic growth.
  • The rental market is on track of a recovery path with FNB reporting that vacancy rates have slowed down from pandemic-induces highs of 13% to 7.8% as recorded in the third quarter of this year.
  • A recent published Lightstone Residential Index Report points out that at the end of August, the national year-on-year house price increase was 3.67% and has steadily been on the decline since early 2021.
  • Downwards pressure on our property market is also very visible in the 21.9% decline of units of residential building plans being passed during the 3rd quarter, versus a positive growth of 11.8% recorded during the second quarter. Due to this state of affairs, we can also expect ongoing decline in building- and construction activities for the year to come.

What is lying ahead of us for 2023? In combination with economic pressures over a broad front that is mounting in our country, next year is expected to be an equally challenging year throughout the whole property sector. The cumulative interest rate hike of 350 basic points, likely to continue to put downwards pressure on property demand as well as property prices. This also brought further along by high global inflation rates (e.g., inflation rates in the USA have been the highest in the past 40 years and recorded at 8,2% in October), rising fuel-, electricity- and food prices that all together is slowing down the global economy, driving higher inflation across all borders and expected to average 6,7% for 2022. And also inevitably putting downwards pressure on our own economy for the year to come.

The renewed weakening in our Commercial Property Sector, also taking the weakening of retail-related fundamentals into account due to the series of interest rate hikes, is visibly slowing investor demand for retail property and all indications are that the uphill struggle is to be continued into most probably the next 6 months or even longer.

Our own GDP is widely expected to shrink even more in 2023, whilst our Treasury is predicting a very low economic growth rate of 1,8% for this year and an average of only 1.5% over the next three years to come. One of our biggest drawbacks being the inability of Eskom to deliver sustainable energy supply for our economy to grow through industrial- and construction expansions, which could deliver more desperately needed sustainable jobs. And which could put people in a position to afford property – with less buyers, more downwards pressure on property prices and sale volumes is inevitable.

It is a well-known fact that especially during challenging times, property investments remain to be a sound investment option, especially when there are signs on the horizon of economic stagflation where property then especially become an effective way to store value. The bottom line is that Sellers more than ever before, will have to be sensitive to general market related prices as property investors will more than ever before, be shopping around for best value for money as high interest rates does slow demand resulting in lower property prices. Sellers will need to be open to guidance from well experienced and professional agents that bring years of property expertise to the table whereby Sellers can only benefit.

The bottom line is that we all know that the market will settle again – it’s a mere question of time, but in the meantime, we need to remain resilient under stressful economic situations and challenges. We all know every dark cloud has a silver lining and that hopefully light in many tunnels, will shine soon again – especially that of Eskom!

Please accept our very best Festive Season greetings to you and your loved ones from all of us here, at Heiberg Estates.

Please be assured that your support, loyalty, and interest is never taken for granted and always sincerely appreciated by the Heiberg Estates Team! May 2023 be a year of new beginnings and may you all be blessed abundantly.

Our very best and sincere wishes.

Bambie & Heiberg Estates Team :

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