The fall of the luxury home market in South Africa

Two to three years ago the property market was all about sellers, rising prices and the tale of two cities with Cape Town on a high performance trajectory with no price too high for upper end sellers.

Now, says Samuel Seeff, chairman of the Seeff Property Group, it is all about buyers and the tale of two markets with two distinct price tiers operating in a juxtaposition. The low to mid-market to R1.8 million (R3 million in some areas) has performed well despite perceptions. In contrast, the R10 million-plus upper-end market is almost dead compared to three years ago.

After the initial optimism following the elections, 2019 emerged as challenging for the property market, bogged down by the ongoing low-growth economy, political noise and property ownership concerns. Activity has concentrated largely in the market below R1.8 million (R3 million in some areas) comprising of buyers who are generally committed to staying and happy to buy.

With no discretionary money, this market has been boosted by the favourable mortgage lending climate and unprecedented bank approval rates.

The flat interest rate and July rate cut was a further boost while the flat price growth which has remained in the 3.6% range, has kept house prices flat, further supporting activity in this market.

Although the time on the market lengthened and most sellers have to offer a discount on their asking prices, this market remains fairly active, the property group said.

The market above R10 million which comprises of buyers with discretionary money who do not have to buy, has remained largely in a holding pattern, waiting to see how the economy and political environment unfold. They remain cautious given that property is generally a 20 year investment and want to see visible and significant change in the economy and political situation before committing.

The effect has been a notable decline in high end sales and prices. Activity has practically halved on the Atlantic Seaboard compared to 2016 with the highest price achieved barely reaching R60 million compared to R290 million just three years ago.

In the Sandton/Joburg area, only two R20 million-plus sales have been recorded for this year compared to about 2-3 per month in the 2016/2017 period. Foreign buying remains notably down, and we might actually have more foreign sellers than buyers on the Atlantic Seaboard this year.

When this market does buy, they are spending considerably less per transaction, opting perhaps to take the balance off-shore where they are possibly earning lower yields compared to what they could have earned from a good property market. The challenge, said Seeff, is that you have to sell a lot of R1 million properties to make up the transfer duty and economic benefits of a R10 million sale.

The upside to the market, is that it is one of the best times to buy and Seeff expects this to remain the case during the early part of 2020. While we anticipate an increase in the number of transactions, the tale of two markets will likely continue with activity concentrated largely below R1.8 million, supported by the low borrowing costs and favourable mortgage lending conditions.

Seeff said that2020 will start off with a market which remains oversupplied in most areas. Price growth is expected to remain flat in the 4% range at best and sellers will need to keep their asking prices market-related or risk not attracting buyer interest.

“That said, the Springbok win has gifted South Africa a ray of sunshine and has shown what is possible and can be achieved if there is political will and commitment. It has lifted the mood in the country, and we hope that this can spill into the economy and property market. Until then property 2020 is likely to be more of the same,” Seeff said.

Read: 3 picture-perfect beach towns that offer good property value in South Africa

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The fall of the luxury home market in South Africa