Turn for South Africa’s property market is coming

Homeowners, buyers, sellers, and those involved in the South African property sector hope that next month’s interest rate decision will bring good news.

Over the past several years, some property experts, including those at Jawitz Properties, have observed a decline in home values.

This impacts individuals’ ability to build wealth and plan for retirement, as many view their property equity as a key component of their retirement savings.

The residential property sector in South Africa was particularly hard hit at the onset of the Covid-19 lockdown in 2020. For the first three months, people were unable to buy or sell any properties, and the deeds office itself was closed.

Herschel Jawitz, CEO of Jawitz Properties, told BusinessTech that he believes the South African residential property industry has recovered since the pandemic, but it continues to feel the pinch.

This is because the sector has been under pressure due to factors such as long-standing high inflation rates, pressure on consumers, weak consumer and business confidence, and low economic growth.

However, he remains optimistic about what lies in store for the industry in the coming months.

Jawitz explained that when the South African Revenue Bank (SARB) significantly slashed repo rates at the height of the Covid-19 pandemic in attempts to keep the economy afloat, there was a surge in activity and demand in the market—but this was short-lived.

In November 2021, the SARB’s Monetary Policy Committee (MPC) started its current hiking cycle when it noticed an upward trend in the country’s inflation.

Since then, it has raised interest rates by a cumulative 475 basis points, with the repo rate now at a 14-year high of 8.25% and the prime lending rate at 11.75%.

The MPC has said it will continue to keep rates high until inflation is sustainable and comes down to the mid-point of its target range of 4.5%.

Jawitz explained that persistently high interest rates, coupled with low economic growth and pressure on disposable incomes, have meant that “the residential property market and the industry have been impacted negatively, particularly in terms of property price growth.”

“What we are seeing at the moment in many parts of the country is that people who bought their properties five, or as far back as ten years ago, are not able to sell their property for what they have paid for it.”

“So what we are seeing is the decline in the real value of people’s property, and I think that is a threat to economic growth and people’s ability to create wealth and retire because many people see part of their retirement wealth as the equity that they built up in their properties,” said Jawitz.

The CEO added that another crucial factor that impacts property price growth is that of consumer and business confidence, which “has been very low.”

“The nature of investing in property is very much a long-term investment, and so when confidence and sentiment is low, long-term investing is under pressure,” said Jawitz.

The silver lining

While Jawitz did outline some woes impeding the sector, he believes that there is still much to be optimistic about.

The group has seen that the turnaround in Eskom’s electricity supply performance this year, coupled with a new coalition government and expectations of interest rate cuts later this year, to name a few, has resulted in better consumer and business sentiment.

This improved sentiment has resulted in better demand for residential property in the first half of 2024.

Additionally, Jawitz is optimistic that the new two-pot retirement system, which will kick in in September, will have a positive impact on the property sector.

The Reserve Bank projects that the two-pot retirement fund system could boost household disposable incomes by at least R31 billion and potentially as much as R79 billion in the fourth quarter of 2024.

“I think that its positives are twofold,” said Jawitz.

“Firstly, you might find that some of that money goes into helping people settle debt, and there are homeowners who are in arrears on their home loans, and I think many people will tap into their pot to catch up on that,” he added.

“Secondly, I think that some people will potentially tap into it to acquire an investment or retirement property.”

“So I do think that some part of that money will find its way into the residential property sector, which is positive,” concluded Jawitz.

Read: R500 per month relief for homeowners in South Africa right around the corner