Absa confirms property market confidence improved in Q4 2020, by four percent

Absa confirms property market confidence improved in Q4 2020, by four percent

Private Property South Africa
Kerry Dimmer

“The property market continues to enjoy positive sentiment associated with the sector’s ability to increase value over time,” says Muzi Zim, Head of Advanced Analytics at Absa Home Loans. This was the most important reveal in Absa’s Q4 (2020) Homeowner Sentiment Index (HSI), produced quarterly, and which quantifies beliefs in the market.

Each of the quarters measured, are compared to the previous quarters and years, which allows Absa to measure resilience and confidence in the market. One of the most interesting discoveries is that since Q1 2020, respondents have consistently shown increasing confidence. “We have also seen a consistent increase in sentiment towards buying and investing in property,” says Zim.

These consistencies can be attributed to the belief that property could help to protect wealth during the uncertainty that was evident during the year, and of course, the low interest rate cycle that made home buying more affordable.

The main contributors to the confidence increase of 4% in Q4 2020, which resulted in overall confidence ending the year at 80%, are:

Demand:

• The HSI shows the ability of property to increase in value over time.

• The current low interest rate cycle manifesting in debt-financing being more affordable.

Supply:

• Resilient house prices.

• Renewed impetus by owners to invest in their existing properties.

Whilst there has been an increase in most of the sentiment areas of focus measured by Absa, the conclusion is that because buying sentiment outgrew that of selling confidence, it is likely that demand for property continues to outgrow supply.

Positive vs Negative

When looking at the positives driving sentiment, the overriding perception is that ‘property always increases in value’ and that it ‘has always been a secure asset’, both having 55% of respondents considering them as a driver of positive overall sentiment. On the flip side has been that respondents see the economy as unstable and that levels of unemployment are too high, say 59%, and 55% of participants (with negative sentiment) respectively.

“This perception of the macroeconomic environment, however, has to be looked at from a Covid-19 perspective, which cannibalised some of the pre-existing negative sentiment. However, the low interest rate cycle went a long way to providing sufficient positive sentiment to make up for this,” says Zim.

The continued presence of Covid-19, as indicated in Q4 2020, caused uncertainty among some 60% of respondents with negative buying sentiment, yet this again was balanced by a buying sentiment increase in that quarter, of 7% . Selling on the other hand, only saw 33% of respondents considering Q4 as an appropriate time to sell.

Renovating property remained popular during the year, with 73% of respondents considering Q4 as an appropriate time to make alterations and renovations. A similar sentiment, at 80%, was measured as an inclination towards buying rather than renting if affordable.

‘Invest in property now’, say 78% of respondents. The 18-24 year age group is inclined towards this sentiment by some 87%, compared to the 84% of 25-34 year old’s. The 35-44 year group follows at 83%, where-after the remaining age groups average below 78%. These are statistics that are very important for agents to consider as they consider their marketing campaigns for 2021.

HSI drives marketing

The HSI is an important tool that can determine and influence the marketing of properties based on the differing motivators of sentiment, says Zim. “Q4 suggests sellers are motivated by good property prices, and buyers encouraged by the low interest rates. This means that agents can take on more of a thought-partnership role with buyers by breaking down the property price into what monthly costs can be expected in terms of the bond instalments.

“It is difficult to pinpoint exactly how much sentiment is influenced by such marketing efforts because sentiment is not only influenced by what is read and understood. Conversations within social circles also impact, which is why I encourage people to look at trends that affect supply/demand dynamics and how these play out in general.

“For example, in the case of someone looking into selling their property, it would be useful to track sentiment towards buying and investing to have a good idea of what relative demand could look like. This is why we produce the HSI; it’s an extremely valuable tool for all property stakeholders,” says Zim.

Outlook

There is much speculation about what will happen to the interest rate this year, with expectations by many real estate agencies of an increase. These opinions differ in terms of whether this is to come in the second, third or even fourth quarter of the year. The HSI says that Absa expects interest rates to remain at current levels and begin a slow incline early in 2022, and that interest rates remaining low will be key in allowing the market to continue with what could be a new level of balance in market dynamics between buyers and sellers.

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