Property activity has long been recognised as a fair indicator of the strength of an economy., and overall, property has always remained a sound investment, especially during uncertain times when people tend to fall back on proven investments. However, measuring market activity is not the same as knowing or understanding what the motives are of the market participants that are driving this outcome; for that we have sentiment indicators.
Sentiment indicators are valuable tools for quantifying current beliefs, and can therefore be used to inform future planning and strategies. That is not to say, however, that decisions should be absolute in terms of planning ahead, because, as we have recently experienced, unknown influencers change market sentiment dramatically.
Where a property sentiment indicator works most effectively is in the present and for short-term planning, which is why Absa’s Homeowner Sentiment Index is produced four times a year. This Index measures the confidence levels of South Africans on the property market. Nondumiso Ncapai, Head of Product at Absa Home Loans expands on the concept. ‘We produce our Index in a bid to gain insights directly from the individuals shaping supply and demand dynamics in the residential property market, and compare them to stats we’ve gained in previous quarters and years, so the sentiment is comparable.
‘Obviously this year it’s been somewhat different to previous years with the advance of Covid-19 and resulting lockdown. Rising concerns about the economy and the uncertainty introduced however, has not affected sentiment of homeowners too drastically, in fact I’d say it has remained resilient.’
Ncapai bases this on the comparison of this year’s Q2 results to the same time in 2019, which was during the time when South Africa held its national elections. “At that time respondents felt as though they had more options available to them (vs now), and considered it more appropriate to acquire investment property (82% vs 71% in Q2 2020). There was also more consideration being given to renovating existing properties at 75% vs 61% in Q2 2020), and in terms of selling their property 39% vs 20% in Q2 2020.”
Before we compare the Absa Homeowner Sentiment Index results of Q1 with Q2 of 2020, we have to consider some of the other influences at play, many of which have manifested with the pandemic. Most important is the low interest rate cycle, which brought about a shift in the dynamics of different market sectors. This in turn really inspired first-time home buyers to participate in the market as owners, rather than renters of property, and existing owners reconsidered their evolving property needs such as right-sizing their homes. Ncapai also talks about ‘suburbisation’, which was brought about by the new ways of working, be that from home or with reduced frequency of commuting to the office.
‘Individuals with existing investment properties have been affected by various shifts like distressed tenants in rental properties needing relief from landlords, and vacancy rates increasing as renters either moved in with family or friends, or even as mentioned earlier, entered the property market as buyers,’ says Ncapai.
‘Property investors also opened up about their thinking that the timing was not right to make new investments, however nor were they looking to sell their existing portfolio.’
Looking at Q1 results, January to end March, 1-6 respondents indicated a negative sentiment noting Covid-19 specifically as their reason for a lack of confidence in the market. In Q2 however Covid-19 mentions were reduced, although respondents did cite increasing concerns about uncertainty in general, which is likely the result of negative spillover effects of the pandemic,’ says Ncapai.
How to use the Index
As the country has progressed through the various lockdown levels, and based on generic conversation alone, sentiment is again shifting ahead of the Q3 results, which will cover the period July to September. Current activity is that more people are exploring the type and location of the property/ies they want to buy, and this is where the Absa Homeowner Sentiment Index really works in their favour.
‘The Index should be seen as an additional data point in the bouquet of information available to market participants, where they can track sentiment to give insight about the potential direction of property prices going forward,’ explains Ncapai. ‘They can also better understand the opportunities and concerns of other market participants that they may not have previously considered.’
The Absa Homeowner Sentiment Index is but one of a number of offerings from this full-value bank. In addition to financing solutions, a number of tools can be accessed that better equip individuals in their journey to property ownership. These, and the Sentiment Index can all be accessed from the Absa website.