HEIBERG ESTATS NEWSLETTER: SEPTEMBER 2024
Dear Property Partners
There is good and positive news with new hope glimmering on the horizon for our property market! The long and much-awaited announcement by the SA Reserve Bank to cut the repo rate to 8% and the lower prime lending rate now at 11.5%, has at long last happened. Further good news is the decline in the inflation rate which presently is at the lowest it has been over the past three years – dropping from 5.1% in June to 4.6% in July and to 4.4% in August, which is below the target band of 4.5% that the Reserve Bank strive for. It is the first time since April 2021 that our inflation rate dipped below 4.5% and there is further hope that inflation can even reduce to 4% towards the end of the year. At this stage, an average inflation rate of around 4.5% is predicted by leading economists for next year which will have a positive impact on our interest rates which are expected to be lowered in another series of .25% cuts for the next few months. Several other central Banks have lowered their repo rates like the Bank of England last month, the European Central Bank, and lately the Federal Bank in the USA.
The strengthening of the Rand exchange rate amidst domestic political- and economic uncertainties gradually stabilizing with the new Government of National Unity and where the rand is more than 6% stronger against the US Dollar than a year ago, as well as being 4.8% stronger since the beginning of the year, is also welcomed across a broad spectrum. Furthermore, the lower fuel price that came down by 10% so far this year, coupled with much less load shedding, is making a positive difference throughout the whole economic spectrum to enhance economic growth, creating new jobs, and increasing the tax base and affordability to enable more people to buy property. All of the above factors are expected to give much-needed new impetus throughout all property sectors.
As reported before, our property market has been under a lot of pressure for the past two to three years, looking at all the statistics, decline in property prices as well as lower sale volumes. In an article recently published by the well-known and acknowledged Dr Roelof Botha, one of the biggest contributing factors to this scenario has been unemployment as well as the difficulties that households face with debt at the percentage of income, is 9.2% which is the highest in 15 years. Economists are hopeful that our average inflation rate will stabilize at around 4.5% for this year and at 3.4% for 2025, followed by incremental interest rate cuts expected also in November and January. We are positive that this in addition will also create renewed interest and energy so much needed in our property market.
Furthermore, with increasing positive sentiment with great expectations for economic improvement with our political landscape showing signs of improvement and becoming more stable after the elections, and with almost no load shedding since March 2024 that does make a huge difference in our manufacturing, mining, construction, and other industries, we have all reason to believe that property demand and sale volumes are on the threshold to pick up and gain momentum.
On another positive note, is the international credit rating agency Fitch’s decision two weeks ago to affirm SA’s longterm foreign- and local currency debt rating at BB-, maintaining a stable outlook. Fitch regards our Government of National Unity (GNU) as a positive factor and contributing to the government’s commitment to its reformation programs and its commitment to create sustainable jobs.
Some of the latest interesting facts and statistics:
- The FNB House Price Index reports a minimal price increase year-on-year for August at 0.8% – down from the recorded 1.8% in 2023 and 4.7% in 2022 in the same period. This illustrates the lower disposable income and bigger cost of credit impacting demand as well as declining house prices that we have observed, especially over the past 18 to 24 months.
- The Rental Market is under pressure where rental inflation fell to 3.2% in the second quarter of 2024 versus the 3.3% recorded in the previous quarter. However, a Rode Residential Survey points out that vacancy rates for flats have decreased in the 2nd Quarter from 7.9% in the previous quarter to 6.7% – interesting to note that during Covid vacancy rates were 5.4%.
- As an example of how tough up to now our SA Property Market has been for several years, Growthpoint’s annual results published a few days ago pointed out how the vacancy rate increased over recent years. Looking at one of our most popular and largest commercial properties in its local property portfolio, the Brooklyn Mall of around 75 000m², it showed a vacancy rate increasing from 3.6% in 2019 to the present 18.7%.
- The Construction Sector is hopefully going to improve within the near future. The value of approved building plans in our metropolitan and bigger municipal areas, declined by almost 20% in real terms since the beginning of this year. Presently demand exceeds supply by far in the lower price ranges and coupled with less load shedding, it could provide new impetus to engage in new developments which will provide much-needed jobs and expand our tax base. Our building industry which is one of our biggest contributors to job creation, urgently needs cooperation and the government’s protection and stepping up its measures against the construction mafia, which is causing havoc on building sites across our country.
- Construction shortfalls across South Africa also result in fewer residential units for rent and rental demand is exceeding supply by far, especially in the lower price ranges. Our residential sector needs to support our construction industry to deliver an affordable supply of housing to our growing population where currently 16% of South African households, live in informal housing.
- According to Stats SA there are more than 19 million households in SA where almost a quarter (23.9%) live in rented accommodation – the ongoing high interest rate of the past few years, also forced a huge percentage of our population to rather rent than buy.
- In an article recently published in Businesstech, it is interesting to note that data from PayProp Rental Index shows that more high earners are renting than in previous years where 9.3% of rental applicants earned R80 000 or more a month, compared to the 6.8% recorded during the second quarter of 2022.
- BetterBond reports that the quarter-on-quarter increase in home loan applications was 6.5%, pointing to a mild increase in interest amongst prospective home buyers. More positive news is that the year-on-year increase in loans for homes valued at more than R3 million, was 15%.
- For the 12 months until the end of August this year, the average loan approval rate was 60.8% – more or less the same as recorded 2 years ago.
In summary, the mid-point of the Reserve Bank’s target rate of 4.5% has been reached and spells well with glimmers of hope for a gradual recovery for our property market with an expected series of potential .25% interest rate cuts to come for the next 6 months or so. As there is a restoration of confidence amongst buyers and investors, we are truly optimistic to see positive momentum and increased buyer activity as financing of property becomes more affordable where with the lower interest rate and more cuts expected, purchasing power increases. Especially with the CPI that has stayed within the target range of 3% to 6% for 14 successive months now. We are confident that the latest positive news over a broad front should lead property investors to start entering the property market again with good recoveries expected, especially within the residential sector.
It is important for those who have been waiting patiently on the sidelines until interest rates come down again, not to wait much longer and to get moving as demand is going to inevitably increase, and with that house prices are expected to start rising again soon. Utilize the present favourable Buyer’s market conditions which is still offering excellent investment opportunities!
Call us soon – we remain to be on 24/7 standby for you, our much-valued and cherished Heiberg Estates Clients. Also visit our website at www.heibergestates.com
With best and happy Spring greetings.
Bambie & Heiberg Estates Team
