South Africa’s property sector is facing a longer-term correction – and it will likely take a while before it turns positive.
This is according to FNB’s senior economist for commercial property, John Loos.
Speaking to RSG Geldsake this week, Loos said that South Africa’s property sector has experienced low house-price growth or commercial valuations that did not keep up with inflation and, in real terms, this resulted in a long slowdown.
He said only once the correction ends would it be a good time to buy property.
“In terms of investment in the commercial property sector in South Africa over the past five years, we have been on the weaker side when compared to elsewhere,” said Loos.
“When it comes to residential, for example, FNB home-price growth never went much above 4%, but the US sometimes swung into double digits during the period of lockdowns.”
He said that South Africa had faced long-term economic stagnation, and since 2012, there has been a broad slowdown. And despite significant anomalies such as the pandemic, the country is still experiencing stagnation.
Loos said that significant economic policy changes are required for the property sector to be turned around in the years to come.
“Policy will change; the private sector will be allowed to have a larger participation in many sectors, such as electricity, and then we could perhaps see the best part of the decade ahead perform significantly better economically, and property can turn around,” Loos added.
Recent data from property research firm Lightstone supports Loos’ assessment.
Lighstone said that residential property would continue to be shaped by local and international challenges; however, a stagnating domestic economy will be the toughest challenge.
The group said that the economy’s stagnation would see prices grow at a rate lower than inflation. Out of all three predictive forecasts, from baseline to positive, further interest rate hikes are expected – ranging from 50 basis points to 200 and GDP growth no higher than 1.1% in the most conducive scenarios.
Further rate hikes would hit home, making it harder to pay off monthly bond repayments.
When looking into the property market during a high inflationary period, Grant Smee from Only Realty Property Group said that it is best to look to buy at 70% – 80% of your affordability – thus ensuring a buffer for potential increases in rates, costs of ownership, taxes and levies.