Predictions 2023 - indications are it's a tough road ahead
Category Lets Talk
Globally, the housing market for 2023 could be one of the most underwhelming in years. As the interest rate continues to climb, buyers will continue to enjoy a growing pool of homes for sale, but the challenge will be affordability as home finance budgets continue to be squeezed. Realtor (USA) says that 2023's international housing market could become a "nobody's market ... not friendly to buyers nor sellers", and in having the flexibility to adjust, a healthy dose of patience is required.
In South Africa, buying power will likely be on the decline, given that the typical bond repayment will be higher as the markets anticipate further interest rate hikes. Sadly this may price many more buyers out of the market or lower their expectations. But, on the other hand, this can also swing in a buyers' favour, for with an improved stock, they may be able to negotiate a lower price while banking on the potential to sell higher in future years when the market stabilises.
Private Property explored the thoughts and opinions of some of the market's real estate participants, whose cautious optimism takes into account the stressors that impact household budgets, which include the usual annual increases across many of their cost centres.
Harcourts South Africa - CEO Richard Gray.
Interest rate
We have seen a marked slowdown from the highs of 2021 and the start of 2022, and consumers are heavily stretched. I believe we are reaching the top of the interest rate cycle and will not see too many more rate increases. It appears that inflation is slowly coming back under control, but much will depend on the rand strength and oil price. If those remain stable, we could see interest rates remain level throughout 2023, with a small chance they may reduce slightly towards the end of the year.
I don't, however, believe that there will be a significant further drop in market activity this year based on a number of factors. Firstly, the banks continue to lend responsibly but strongly, so buyers with good credit records can buy well-priced homes. Secondly, we are seeing the return of investor buyers who are acquiring reasonably priced stock. Finally, we have seen the number of international buyers increasing for the first time since the pandemic.
Rentals
This landscape has changed significantly. We saw rentals take a big knock during the low-interest rate cycle as many tenants moved to become homeowners. This swung back to a more normalised position, and we saw our property management number increase during 2022. However, as affordability becomes a bigger issue for buyers, the rental trend will continue on an upward trajectory.
Market movement
I expect the property investment sector to continue to grow, especially given rental favouritism growth, which is appealing to the International market. The 'middle' market remains strong and resilient, but I am concerned that the 'top' end will continue to be slow and impacted by political and economic uncertainty. The 'lower' portion of the market remains sensitive to the poor economic conditions but will likely improve once we experience improved economic growth and job creation.
Overall
The residential property market has proven to be remarkably resilient, and the culture of wanting to own a home remains strong. This will ensure that the real estate market is largely shielded from much of the negative sentiment.
Tyson Properties - CEO Nick Pearson and Johannesburg director Francois du Toit.
Interest rate
Over the course of the year, interest rates will continue to rise and will more than likely settle somewhere between 11 and 12 percent by the end of the year. 2022 was impacted by growing inflation and the cost of living being considerably higher, which resulted in stunted growth in certain neighbourhoods, but in others, property prices continued to grow and even excel.
The diverse markets in South Africa have been affected differently by the rise in the interest rate and inflation. For example, many neighbourhoods in the Western Cape soared, but others were impacted negatively, such as we saw in KwaZulu-Natal. The latter is a market that does, however, seem to bounce back quickly and will likely turn again in its favour in the next few months.
Gauteng, on the other hand, has experienced a huge influx of first-time buyers in the lower price ranges over the past two years. In 2023 we expect this region to be under more pressure than is usual as higher interest rates impact affordability. The end of 2022 did record a slight increase in activity in the upper end of the market, and we are confident this will continue because this segment is not dramatically affected by higher interest rates as players are financially more stable.
Buyers will find, in 2023, that they will have improved options if sellers price their properties realistically.
Rentals
As the interest rate and inflation rise, people's ability to purchase property is constrained, which will positively impact the rental market. In fact, we expect more rental business than in 2022 and in the buy-to-rent market.
First-time home buyers will possibly delay their home-buying journey until SA offers a more favourable interest rate. The rental part of our business has been very active over the past months, contributing a third of our turnover in Johannesburg. We do expect this to grow even more this year as property owners and investors grow their property portfolios to take advantage of a very active rental market and where rental values are on the increase.
Targets and markets for 2023
Based on the recent slowing in the market, we have been cautious with budgeting. However, we still expect a good year due to our continued significant growth in agent numbers and the new offices we plan to open in key neighbourhoods and suburbs. And, given the banks' continued willingness to lend money, we will continue to focus heavily on qualified clients and affordability.
As we settle into the new, post-pandemic market conditions, I believe that the markets in Gauteng, KwaZulu-Natal, and Eastern Cape will gradually bounce back and find their feet, whilst the Western Cape market continues to grow. Confidence in the South African property market is key as the leadership of our country has big decisions to make this year; however, our country is not alone in the issues we are facing if one looks at it globally. South Africa needs to correct its course, and if South Africa can sort out its issues with Eskom as fast as possible, I have no doubt that consumer confidence will return.
Overall
If a property does not sell within 12 weeks, it usually means it is not priced correctly, and in 2023, it will become even more important for sellers to price a property realistically for where the market is at that point in time. It is important for sellers to remember that buyers will always buy where they see value, so it will become more important than ever to price correctly in this very competitive market.
Pam Golding Property Group.
Interest rate
While there is a general consensus that the local interest rate cycle is close to peaking, a recent survey of market analysts revealed that there is little agreement as to the exact timing of the final rate hike - although the most popular view is January 2023. There is, however, slightly more agreement as to the level at which interest rates are likely to peak, with most analysts forecasting a peak repo rate of between 7% and 7.5%.
Despite hopefully being near the peak of the interest rate hiking cycle, South Africa's residential property market remains supported by underlying fundamentals, most notably that overall demand continues to exceed supply. This is perhaps particularly evident in the Western Cape, which is characterised by high demand and stock shortages, while Johannesburg has stock available with less demand - yet both markets function and demonstrate ongoing resilience.
Bearing in mind that while the interest rate has recently been at historic 50-year lows and is now just above pre-Covid levels, it is hoped that we are reaching the end of the increases, as the interest rate environment is understandably the single biggest influencing factor in the market. And while one cannot generalise regarding SA's residential property market, as it is comprised of vastly differing sectors and neighbourhoods impacted by differing dynamics and trends, there are still pockets of excellence.
Encouragingly, however, at the start of a new year, at a time which often heralds buying and selling decisions around lifestyle, finances, career opportunities, schooling/education and retirement, among others, indications are that South Africa's residential property market will continue to weather the current challenging economic trading conditions.
Rentals
Rising interest rates have seen renewed demand for rental properties, prompting a renewed demand for buy-to-rent and/or investment homes. One of the key characteristics of the SA housing market is the young age profile of the population, which means there is a steady influx of young adults needing a place to stay.
The resumption of tourism and business travel - and the prospect of a bumper summer season - has seen the rental economy begin to recover as demand for short-term rentals improves. There has also been a marked increase in applications for investment or buy-to-rent properties in recent months, according to ooba. This suggests that buyers see the residential property market as an attractive investment proposition and could also include those who ultimately intend to semigrate elsewhere in the country, opting to gain a foothold in their desired town or metro housing market with an investment or rental property until such time as they are ready to relocate.
Market movement
We anticipate a bigger shift towards Sectional Title, evidenced in the composition of new housing stock. There are a number of reasons for the popularity of sectional title homes: affordability, cost and convenience, amenities, security and location.
Semigration, particularly to the Western Cape, is likely to continue, but there is a limit to how long this trend can run and the extent to which people can afford to relocate. The most popular areas for lifestyle semigrators include Cape Town, the Boland & Overberg, Knysna, Plettenberg Bay, St Francis Bay, Kenton on Sea, uMhlanga, Ballito and Zimbali.
The 15-minute location will see the popularity of mixed-use developments continue, as well as key nodes or hubs with all amenities/entertainment/work close at hand for those who work from home or share work spaces - this is where central Sandton is positioning itself.
Load shedding and failing municipal services will see more homeowners and buyers responding to the need for investment in alternative power and water resources to enable self-sufficiency. There will be movement to relocate to estates that cater to these needs or to areas that are better run and offer a measure of protection against load shedding.
Rawson Property Group - Managing Director, Tony Clarke.
Interest rate
Inflation has become a challenge almost overnight due to little control over contributing factors like the ongoing electricity crisis and the war in Ukraine, and the South African Reserve Bank being forced to implement a much steeper interest rate increase than had been forecast in an effort to curb runaway inflation. Thus, interest rates are unlikely to decrease any time soon.
Interest rate hikes together with rising costs of living will definitely put a dent in buyer affordability. As a result, the property market will see buyer activity slowing, alongside an increase in distressed sales and downscaling. This imbalance in supply and demand will lead to sluggish property price growth, with inland provinces facing additional pressure from ongoing semigration trends to coastal areas.
These trends will continue into 2023, with nominal price growth remaining positive but subdued for some time to come. Here again, qualified buyers will likely have their pick of properties in 2023. Preferences are going to trend towards smaller, more affordable properties, with holiday home purchases slowing down.
Rentals
Residential rentals started 2022 on the back foot, with vacancy rates recovering more slowly than expected after the pandemic. Moving into 2023, rising interest rates, together with escalating costs of living, will definitely add more momentum, thus stabilising the rental market in 2023.
Rental preferences are swinging towards family homes between R10k and R20k and are often successfully tenanted within days. Going into 2023, the most desirable rental features will be good locations, excellent security and fibre-readiness.
Market movement
With more properties likely to hit the market, and fewer buyers incentivised to act, supply will continue to outpace demand for now. This will keep pressure on house price growth in the short term, offering good value for money to those able to buy now, with an inevitable upswing just over the horizon. In every crisis, there is opportunity. That could mean selling now to reduce your debt and improve your financial liquidity or buying while prices are low to benefit from future growth. It could even mean choosing to renovate rather than upgrade to a new home. The most important thing is not to make impulsive moves out of panic. Property remains an excellent and stable investment, outperforming many other asset classes. It's exciting to see South Africans recognising this opportunity and continue putting themselves out there on the market.
Summary overview.
In the Rode Report, published December 2022, Erwin Rode and Kobus Lamprecht summarise the real estate market as being "stuck in low gear for years to come". It also says that the housing market continues to be slow, as expected, with the rising interest rate and higher cost of living eating into demand.
Looking ahead, the Rode report expresses that there is an expectation that nominal house prices will grow in 2023, albeit at a slower rate than in 2022, due to the weak economy, high unemployment and increasing interest rates. The severe electricity supply crisis is also a huge headwind for the economy. "Don't expect real house price growth soon", say Rode and Lamprecht.
Article Courtesy Private Property
Author: Kerry Dimmer Private Property
