Big turn for real estate in South Africa as confidence jumps

 ·20 Jun 2024

Business confidence in the Other Services sector has increased, with business volumes ticking up in the real estate subsector.

According to the Bureau for Economic Research (BER), overall business confidence in the Other Services sector rose to 55 in 2024Q2, meaning that over half of respondents are happy with prevailing business conditions.

The boost in confidence was statistically significant and consistent with improvements in all the underlying indicators.

Business volumes and conditions also increased by large margins and are now above long-term average levels.

Moreover, realised employment also increased.

“Unlike previous quarters, when confidence in some subsectors increased and in others dwindled, the increase in business confidence for the overall Other Services sector was driven by increases in all the subsectors, the most striking of which was the increase in the real estate subsector,” said the BER.

In the real estate subsector, confidence increased to a level close to the long-run average.

This comes despite 15-year high interest rates, while election concerns peaked during the survey.

“That said, the increase in confidence was met by statistically significant rises in business conditions and business volumes.”

“However, the smoothed version of business conditions and volumes is still well below the long-run average levels, suggesting that the subsector is recovering after a slump.”

Confidence also ticked up in the hospitality sector, from a high of 62 in 2024Q1 to 64 in 2024Q2.

This is above the long-term average, which is positive considering that the sector is entering the off-season period.

This level remains over the long-term average, and it is encouraging to see the subsector maintain its upbeat performance, considering that the country is moving into the off-season period.

The increase in confidence was also met by increases in business volumes, which are above average.

The business services subsector’s confidence ticked by five points, returning it to the long-term average level of 56.

“Despite facing many headwinds, the respondents in this subsector remain relatively upbeat.”

“Consistent with the increase in confidence, there were increases in both business conditions and business volumes. While business volumes increased, the selling prices/fees charged indicator decreased, and profitability remained roughly the same on a quarter-on-quarter basis.”

The results in the transport and storage subsector were somewhat mixed. Confidence increased slightly while business conditions and volumes remained roughly level.

“Operating conditions for logistics companies remain challenging, but respondents are cautiously optimistic about the future.:

Overall, the BER said the results were surprisingly upbeat, even if uncertainty over the economy’s fundamentals remains.

“For one, there is increasing talk of fewer interest rate cuts by the SARB, which could hurt the recovery of the real estate subsector.”

“We also expected an uncertain election prospect to cause many respondents to take a wait-and-see approach.”

“While this might have been the case for a few individual respondents, it did not filter through to the aggregate result, with confidence improving convincingly across all subsectors in other services.

“Although the move in this sector is in step with the overall Business Confidence Index (BCI), the Other Services sector had an even more sanguine result.”

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