How is the property market faring?

Private Property South Africa

The residential property market appears to be coming off the boil somewhat due in large part to an underperforming economy. According to economic data released in April, there was some improvement but the overall picture was still one of economic mediocrity which is beginning to impact the property market.

The latest Rodes Report issued by Erwin Rode, CEO of Rode and Associates lends credence to this premise. According to the report, there appears to be a strong correlation between unemployment and house price growth.

“The robust inverse relationship between these variables again confirmed that house prices are largely driven by the performance of the local economy – holding constant differences in new supply,” said Rode.

The latest House Price Index released by FNB also points to slowing growth. According to the index, the average house price for April rose 5.0% year-on-year which is slightly lower than the previous month’s revised 5.2%. This says FNB, is in line with the continued slowing year-on-year price inflation trend of recent months.

Overall, it would appear that further strengthening is not expected across the residential market in the months ahead. Park Village Auction’s Jaco du Toit who heads up the company’s property division concurs with this sentiment, saying that while demand for residential property still currently outstrips supply, this is waning to an extent.

Adds Du Toit: “If one considers the fragile economic fundamentals which currently underpin the residential market, it appears likely that the broadly slowing year-on-year house price growth trend is set to continue in the near term.”

That said, although growth drivers appear to be lacking, South Africa’s residential property market has proven itself resilient in the past and a sharp house price slump is not expected any time soon. Most property agents remain upbeat and demand for low-maintenance properties in security complexes are still very much in demand adds Du Toit.

On the business front, commercial vacancies remain stubbornly high and appear to be increasing. This has been attributed in part to an oversupply of commercial space in recent times. The lack of commercial uptake could also arguably be attributed to the current business climate.

According to international advisory firm Grant Thornton’s latest International Business Report (IBR) South African business optimism levels have plummeted by 30% since 2013 to record lows. Electricity constraints, rising crime, exchange rate fluctuations, poor government service delivery, pending legislation, lack of skills and economic uncertainty all contributed to the low level of optimism cited.

In terms of the industrial property market, this sector also appears to be losing impetus due largely to the fact that manufacturing levels are down which is impacting demand for industrial property rentals. As things stand, the development of new industrial property in this segment is fast becoming uneconomical.

Things are more upbeat on the retail property front but muted growth is also expected for this sector going forward. Preston Gaddy, Divisional Director of Strategic Retail Leasing at the Broll Property Group says given the current state of the economy, fashion retailers will still seek to expand but will be far more cautious in their selection of new sites. Shopping centres with full standby power are now also becoming more attractive to retailers as this means they can still trade during load shedding periods.

In a nutshell, it would appear therefore that although far from the doldrums of the recession years, the property market overall could be doing better.

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