Emigration-related property sales in South Africa at a 10-year high

Property giant Pam Golding says that until there is greater clarity on the prospects of a recovery in the local economy, the housing market, which remains resilient but is currently weighted in favour of buyers, is unlikely to enter another fully-fledged recovery.

The recurrence of load shedding, ongoing socio-political challenges and a volatile global environment have created further headwinds, said chief executive officer, Andrew Golding.

Pam Golding noted that emigration related sales has become a more prominent factor over the past two years, citing data from lender FNB.

Emigration sales have risen to 13.4% in Q2 2019 – which represents a 10-year high.

“While emigration sales are highest for the upper income groups, the increase in middle and lower price band sales due to emigration could reflect people selling their investment or holiday homes,” Golding said.

A map of where most South Africans are emigrating from shows that the majority of emigrants are leaving from Gauteng – a factor which is undoubtedly contributing to the subdued Gauteng housing market.

Additional themes within the local property market in 2019 include suggestions from FNB that market is still moderately oversupplied, particularly in the middle- to upper-income areas.

“According to FNB It appears that the sectional title market is currently oversupplied, which is consistent with the surge in construction of new flats and townhouses, while demand and supply of freestanding properties is relatively evenly balanced,” said Golding.

He said that the fact that the market remains slightly oversupplied is highlighted by the increase in the percentage of sellers who have to drop their asking price. According to FNB, this rose to 98% in Q2 2019 – the highest percentage of sellers since 2007. Furthermore, the average price drop rose to 9.9% in Q2 – slightly above the historical average of 9% since 2010 (see chart below).

“This underlines the critical importance of accurate, market-related pricing when a property is first brought to market. Buyers are well-informed and many under financial pressure, so a serious seller is advised to price right,” Golding said.

Downscaling remains a key theme – with 23% of all sellers offering that reason, the property group said. It is also the dominant theme across all price bands, Golding added.

Pam Golding said that the second most popular reason for selling is financial pressure. While the percentage selling for financial reasons has risen to 19% in Q2 2019 this remains well below the levels seen in the wake of the 2008/09 recession, it said.

“It is not just about the ability of people to purchase a home but also their willingness,” Golding said. “One of the key measures of “willingness to buy” is consumer confidence, which is in turn driven by market sentiment as well as affordability.

“Nationally, consumer confidence rebounded slightly in the second quarter – with the ending of load shedding in the first quarter and the market-friendly outcome of the May general election contributing to the recovery. At current levels, consumer confidence is marginally above the long term average.”

Pam Golding noted that overall sales volumes are up since Q1 2019. According to Lightstone, although total unit sales slumped in the first quarter 2019 – quite possibly due to load shedding and pre-election jitters – they have since rebounded strongly.

“Further good news is that conditions in the national property market are, nonetheless, beginning to stabilise,” said Golding.

“From a low in Q1 2019, unit sales have since risen steadily from 63,887 in Q1 to 73 656 in Q2 to 77,086 in Q3. And unit sales during the first half of 2019 remain just over 11% below year-earlier levels, Q3 2019 sales are 2% above year earlier levels (i.e. above Q3 2018).”

The increase in units sold is seen partially as a result of growing competition between financial institutions for market share, resulting in the easing of lending conditions with loans – including 100% loans – being extended at a pace last seen 12 years ago, and generally lower deposits required, the property expert said.

One of the signs of banks’ increased appetite for bank lending is the fact that mortgage advances are growing at a faster pace than house prices, suggesting that there are more home loans than before – a scenario last seen in 2012, Golding said. According to ooba, the average interest rate achieved for its buyers in Q3 2019 was 16 bps lower than in Q3 2018.

“This appetite for lending, combined with relatively low interest rates plus inflation which has surprised on the downside in recent months, reinforces the likelihood that conditions could stabilise.

However, for a more sustained recovery in the market, it will require an improvement in economic growth and employment prospects,” Golding said.

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Emigration-related property sales in South Africa at a 10-year high