HEIBERG ESTATES NEWSLETTER: SEPTEMBER 2022

Dear Property Partners

Unfortunately another .75% interest rate increase recently announced, coupled with increasing and frustrating load shedding all over our country, had far reaching and very visible impacts not only on our fragile economy, but will also inevitably put downwards pressure on the SA Real Estate market. Although many people are being forced to re-prioritize their budgets with headwind onslaughts from all fronts imaginable, our property market has proven itself through decades of political- as well as economical rollercoaster events, to be resilient. This despite being under renewed downwards pressures, always riding out the storm whatever the circumstances might be! As the saying goes it is always a good time to invest in property if you buy wisely and keep the property for some years to come – solid returns on property investments will always be a given!

With a global recession looming on the horizon due to global economic growth deteriorating and our own economic growth factor being estimated at less than 2% per annum for the next 2 to 3 years, many countries all over the globe like the recent series of interest rates here at home, have been forced to increase their interest rates. Europe with winter lying ahead, is gearing and adjusting itself due to gas supplies being cut by Russia for severe increases in energy prices as well as potential energy rationing. We all are aware that SA has been leading the way of energy rationing due to load shedding for some years now and that the end for now is unfortunately not  even in sight – estimated to cost our economy up to R4billion per day! The Eurozone is expecting negative economic growth for the last quarter and maybe also for the first quarter next year – this also impacting on our country as well as our property markets all around the world. In China, authorities have an uphill struggle to stabilize their under-pressure property sector, this representing 20% to 30% of economic activity. The direct and indirect impact of so many headwinds bearing down on our own Real Estate Market as one of the largest contributors to our State Coffers, never to be underestimated.

With the SA Reserve Bank that increased the repo rate with yet another .75 basic points a few days ago, rising inflation and unemployment and so many other factors at play directly resulting from the worst load shedding period we have experienced up to date, it is inevitable that especially our commercial property sector will come under increased downwards pressure and subsequently ROI is expected to come down for the next few quarters before there might be any signs of relief again.

A recent FNB report predicts that unfortunately our interest rate increases are expected to continue as consumer price inflation which is largely driven by global oil and food price surges, has accelerated from 2% in May 2020 to almost 4 times as much,  recorded at 7.8% in July this year. This figure is the highest since 2009 according to STATS SA whilst being perceived as the main catalyst for the recent series of SARB interest rate hiking. In comparison inflation in the USA has been recorded at 9,1% (the highest in 40 years), whilst inflation in Germany has been recorded at 7.5% and 10% in Spain.

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

• The SARB’s series of repo rate increases in order to curb rapidly rising inflation, is leading to visible and increasing property buyer hesitancy to commit  in the wake of more expected interest rate hikes in the foreseeable future. This is also especially visible in much less than the norm show house attendances by potential buyers. It now takes longer to sell a property due to increasing constraints and decreasing affordability, effecting buyers with rising costs on all fronts and leading to many buyers deciding to stay where they are for the time being.
• This latest 6^th consecutive interest rate increase pushing the prime lending rate to 9.75%, is not boding well for our real estate market in general, as these rate increases have already been visibly creating a less supportive environment for property sales activities which is showing a clear decline on all fronts.
• A recent FNB report is predicting that the prime rate will peak at 10.25% later this year which means we could expect a further interest rate increase of 1.25% – levels that were last seen in 2019 – and should these widely expected further interest rate hikes occur, the downwards pressure on property prices and sales volumes will be continued across the board.
• Also alarming to note that the buying power of the consumer lessened over the past 6 years by 34% due to ever-increasing inflation and rising interest rates with the rand value of income (nominal income), in average being the same as recorded during 2016.
• Lightstone data points to the fact that the number of houses sold during the first half of this year, were less than those sales recorded during the same period last year.
• The latest renewed pressure on our retail property sector came through a recently published TPN data report where the percentage of retail tenants in good standing regarding their rental payments, is on the decline once again after a short recovery after the Covid-19 lockdowns and was only recorded at 62% during the previous quarter as the increasing interest rates is taking its toll on many already indebted tenants. So also, a decline in retail sales and rental market activity is being reported across the board.
• Interesting to note that retail sales growth turned negative to -2.5% year-on-year versus the 8.1% positive growth rate recorded in January this year – also playing a role that more retail to let space is expected to become available and putting downwards pressure on commercial property renting prices. Commercial property activities is expected to lose further momentum towards the end of the year, especially with growing supply exceeding demand.
• As for some time observed now, the Office Market remains to be under severe pressure with office development currently still lower than conventional levels and with speculative developments at very low levels.
• Growing in popularity is the trend where empty standing office blocks, are being converted into sectional title living units and in specific referral to empty standing office blocks all over our country’s CBDs.
• The Industrial Sector is also losing momentum, although still the strongest on the commercial side with demand slightly exceeding supply.
• On the residential side FNB Property Barometer points out that house prices increase remained the same between July and August averaging 3.4%, illustrating the lessened demand caused by higher costs of living and still to be expected further interest rate increases. Overall, it is expected that the average house price increase for this year, should be around 3.5% versus the 4.2% recorded last year.
• Regarding financial pressure-related selling or relocation, Gauteng came tops where the highest reading was recorded at 57.1% of Sellers in Pretoria, followed by 36% recorded in Johannesburg, 26.5% in Nelson Mandela Bay, 21.2 % in eThekwini and 14.9% in Cape Town.

Downwards pressure on our property market already started with Covid-19, not to ignore the Ukraine conflict’s influence on our economy, ever increasing unemployment as well as inflation. It is furthermore expected that the existing deteriorating property buying conditions, will activate more movement in the rental property market, pushing up rental prices.

Despite increasing concern observed amongst potential property investors about our economic- and political instability and coupled with eroding buying power, it is widely acknowledged that the belief in the security of property as a hard asset of long-term income generation and building wealth, will be sustained. Irrespective of circumstances it is always a good time to invest in property when buying wisely and with a medium- to long term investment objective.

Our Heiberg Estates Team are excited to share our latest listings, rentals and good property investment opportunities with you, so please don’t hesitate to call us 24/7 on 012 362 4628 and/or visit our website at www.heibergestates.com or just click with your phone camera for a quick link on:

Wishing you just the very best!

Sincerely

Bambie & Heiberg Estates Team