This market trend highlights the current economic climate in South Africa right now
Data from the FNB holiday town house price index shows a continued slowing growth trend, along with the emergence of a more concerned and cautious consumer in a weak economic environment.
According to John Loos, FNB’s household and property sector strategist, this could exert additional pressure on strongly holiday home-driven markets in the country.
Loos said that the holiday home-driven markets, both coastal and inland, have had a reasonably good run since around 2013. But he warned that signs of softening have emerged.
In recent quarters, its growth has started to lose momentum, from a relative revised high of 6.4% year-on-year as at the third quarter of 2016, to 4.8% by the second quarter of 2017.
Loos pointed out that while 4.8% year-on-year price growth remains a reasonable rate in a weak economy, it does translate into a shift into negative real growth, given that it is now below consumer price inflation which remains above 5%.
“It is realistic to expect slower holiday town markets, possibly underperforming the more primary residence-driven major metro regions, given that a tighter economy will probably drive the emergence of more conservative households, increasingly concerned about their financial future.
“In such an environment, non-essential home buying – such as holiday homes – become less of a priority,” Loos said.
The lender also pointed to a lower estimate of holiday home buying expressed as a percentage of total home buying in the second quarter.
Loos admitted that one quarter’s decline is too early to draw hard and fast conclusions; however, he said that FNB’s valuers have perceived some market weakening in the coastal holiday town markets.
And looking ahead, the analyst said that the signs are that the FNB holiday towns house price index year-on-year growth rate is slowing, with the forecast that holiday towns may revert to underperforming the larger cities in terms of house price growth.
This is also based on the expectation that the stagnant economic conditions in South Africa will persist, that consumer confidence will remain weak, and that a more cautious household focused more on essentials and less on luxuries will emerge.
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