Credit: Private Property, Kerry Dimmer • Nov 2, 2021.
Confidence in the South African property market increased by five percentage points at the end of Q3. “This is great news,” says Nombuso Sibeko, Data Science Manager at Absa Home Loans, “Clearly, there is an improvement in optimism. However, we must also take into account the fact that this does come off the back of the July unrest resulting in acts of violence and destruction to property.”
Respondents attribute their elevation in confidence to property value increases, their consideration that property is a secure asset, and property having the potential to generate long-term income, all of which were emerging in Q2. “Measuring sentiment post the outbreak of the pandemic has proven critical to understanding timings around buying, selling and investing in property. For example, it is only now, after almost two years, that selling sentiment is finally recovering to pre-lock-down levels,” says Sibeko.
“But we also await the outcome of municipal elections, and as with all major political, economic and socio-economic challenges and change, sentiment fluctuates depending on such results.”
Sibeko makes a good point given that HSI Q3 reveals that 80% of investor respondents are concerned about political instability, with 100% of them similarly concerned about land expropriation risk.
For example, 81% of respondents consider it an appropriate time to buy property considering the current market backed by the 54% that are unchanged in their view that property will always be a good investment. In addition, 47% also highlight the low interest rate as a good to reason to consider buying. “There is also a group of respondents that remain under financial strain due to Covid-19 (43% of our respondents), and 42% feel the economy is under-performing,” says Sibeko.
“What we also found is that non- first-time homeowner respondents, regardless of their concerns around job security and unemployment, score the highest in renovation sentiment. This has been an interesting upward trend since the start of lockdown, as typically, the non- first-time homeowners’ segment have tended to score quite low in renovation sentiment. This change in sentiment seems to be driven by the current opportunity to get even higher returns when selling as significant house price appreciation has taken place from the 2020 prices, driven by the strong buying sentiment.”
The sentiment around renovating and making alterations has recovered from the dip in Q2 to match that of Q1. The investor respondent group is the only segment that shows negative sentiment towards this type of activity because they believe materials are currently expensive and the potential exists to over-capitalise.
The 44% of respondents who can no longer afford their property believe it is better to sell currently. The same percentage believes that properties can still realise a reasonable selling price. Investors are keen to pick those up, given their belief that there will be a high demand for rentals due to the pandemic. “This sentiment is reflective of the increase in selling sentiment in Q3 that is partly driven by the aforementioned belief: that if you can no longer afford a property, then it should be sold,” says Sibeko.
The Absa HSI also measures sentiment at the provincial level. In Q3, 80% of respondents from the three provinces with the highest response rates, namely Gauteng 47%, Western Cape 19%, and KwaZulu Natal 14%, provided the following overall sentiment measures: Gauteng is up four percentage points from 79% in Q2; Western Cape is up seven percentage points, and KwaZulu up by six percentage points.
“Looking at the overall positivity update, we conclude that this is potentially a good time for the market because there is more willingness to put more stock into the sales arena, the lack of which was a serious concern when the market swung from demand growth being higher than supply, as was indicated by previous HSI results,” says Sibeko. “This swing of addressing stock shortages will simultaneously increase selling prices.”
A further consideration that will affect sentiment in Q4, as it has done throughout the year, is the interest rate. Absa is confident that the interest rate will remain where it is currently for the balance of the year. “We do, however, expect interest rate hikes in 2022, and this will likely create a slowdown in positive sentiment, the effect of which will only be evident sometime after the rates increase.
“And of course, we will continue to feel the effects of Covid-19, which we’ve seen as a recurring driver of negative sentiment across all the sub-indices we measure, barring the buying vs renting sentiment. Moreover, with analysts predicting up to four years of pandemic fall-out, we can expect some uncertainty in the market to prevail for some time,” concludes Sibeko.