HEIBERG ESTATES NEWSLETTER: OCTOBER 2022
Dear Property Partners
We are rapidly approaching the final stretch of the year, a year with unexpected new challenges and unforeseen uphill’s due to the worldwide economic ripple effect caused by the war in Ukraine, escalating geopolitical tensions, worldwide rising inflation, and interest rates. These negative effects without any doubt also increasingly visible over a broad front on our own property market.
Downwards pressure on affordability to buy property is fundamentally due to all-around monthly basic costs of living increases, like rising fuel- and food prices plus rising inflation, which is at its highest level in 13 years, resulting in the SA Reserve Bank’s repetitive increases in interest rates this year with a further substantial increase expected in November, which will be the seventh consecutively increase. The constant decrease in the registration of new mortgages clearly illustrating the deterioration of affordability across all sectors of the SA Property Market.
Widely regarded as the biggest pressure on the world economy, is the negative side effects of the most aggressive increases in interest rates across the globe since the 1980’s. A report from Momentum Investments point out that inflation is now more than 6% in 80% of countries whilst many countries are reporting their highest inflation rates in the past 30-40 years, e.g., recorded in September at 10% for the first time in the Euro Zone. StatsSA stated our inflation rate is slightly down in August, recorded at 7.6% versus the 7.8% recorded in July – the latter the highest since the 8% recorded in May 2009. The strengthening of the US Dollar with our Rand deteriorating recently to more than R18 for a single US Dollar, is also rising concern and will lead to more radical fuel price increases as already announced for this week.
We can’t ignore the fact that not only here, the global economic growth rate has substantially decreased in the existing global recessionary environment. It is predicted that 25% of the world economy in total could grow next year at less than 2% and that worldwide inflation could stay high until 2024, before hopefully getting back to normal average figures. The IMF in a recently published report, is expecting an average worldwide economic growth rate of 2,7% for 2023 but downscaled its prediction for Europe from 0.8% to -0.3%. Our own economic growth rate for this year has again been lowered from an initial expected 2.3% to 2.1% and for next year lowered from 1.4% to 1.1% – for sure also not boding well for our fragile Property Market.
Some of the latest statistics and interesting facts, as follows:
- A recent FNB Residential Property Barometer report states that annual house price growth was lower in September, averaging 3.1% versus the 3.4% recorded in August. This resulting in the average house price growth for the third quarter this year, declining to 3.3% versus the 3.8% recorded in the second quarter.
- Market activity and demand is visibly slowing down in especially the middle price segment as well as selling prices and sale volumes due to declining affordability in the wake of rising global inflation, interest rates, the recessionary environment, escalating geopolitical tensions and escalating unemployment.
- FNB Property Sector Strategist Johan Loots, reports that looking at the latest mortgage lending data that was recently released, new mortgage approvals are shifting into a year-to-year decline. From the 1st quarter positive year-on-year growth recorded at 5.34%, the growth rate in the total value of new mortgage loans granted slowed to a negative -9.35%, as recorded during the second quarter.
- With sale slowdowns recorded in both the office- as well as retail segments, the value of commercial mortgage loans granted has declined by an alarming -24.31% year-on-year as recorded during the second quarter this year, versus the -2.5% recorded in the first quarter.
- A further indication of the growing slowdown trend in our property market and a weakening picture for the Commercial Property Building Sector, is the decline in new plan approvals passed as recently reported by StatsSA. The total square meter of industrial-, retail- and office building plans passed, declined by -5.4% year-on-year in July 2022, versus the -28.15% decline recorded just in June this year.
- Industrial properties outperformed other commercial properties, where more than 50% more new industrial properties were completed during the first three quarters this year in comparison to the same period last year. Interesting to note that the immense growth of e-commerce of about 66% just in 2020 after Covid-19, is for sure stimulating this segment on a continuous basis due to a growing demand for new generation warehousing- and distribution centres.
- Escalating vacant space in the commercial sector has been recorded, especially noticeable not only in the continued high vacancy rate available office space on a national average basis, but also to a lesser degree in growing vacancies in retail space. It is expected that long-term building activity underperformance in this sector will continue for years to come due to changing corporate working environments brought forth as an aftermath from Covid-19.
- Property market activity slowdown over the third quarter is also obvious due to properties for sale remaining to be on the market longer before being sold. Looking at the second quarter it took an average of 9 weeks and 4 days to sell, which lately increased to 10 weeks and 1 day.
- On the rental front a recent published Rode Report points out that the rental market is picking up again due to Buyers lessening affordability, opting to rather rent than to buy in the wake of further expected interest rate increases. The sectional title vacancy rate for the third quarter was an average of 7.8%, better than that of the second quarter recorded at 8.8% – this in comparison to the 13% vacancy rate recorded during the last quarter last year.
- Gauteng recorded the lowest residential rental growth over the past few years compared to the Western Cape and KZN. In the third quarter this year Gauteng had the lowest rental growth of all the provinces, namely 1.1% compared to the third quarter last year, versus the rental growth in KZN of 5.4% and the Western Cape recording 2.7%.
We are without any doubt experiencing hesitancy amongst a huge percentage of prospective property investors to commit and put hand on paper, with growing numbers adopting a wait-and-see attitude until such time that our economy starts to normalize again. This rather lethargic state of events continuously putting downwards pressure on property prices and sale volumes, whilst this trend is expected to continue for some time to come. The steeper-than-expected interest rate hikes and slower wage increases impacts on affordability and this as mentioned above, is already leading to further property market slowdowns and longer periods on the market before selling successfully. We furthermore do not expect interest rates to be lowered before the first quarter next year with so much expected continued global turmoil on all fronts, especially with no end in sight of the war in the Ukraine.
Our whole Heiberg Estates Team wish to thank you for all your support and deeply appreciated loyalty on a continuous basis throughout so many years and wish to assure you that we are there in full force to guide you and assist you on a 24/7 basis whatever your needs in the property sector might be. We are always so happy to see you popping in at our offices for a quick coffee and property update, so please come and visit soon again!
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With very best and sincere property wishes to you all.
Bambie & Heiberg Estates Team
