Once you feel the market has turned it did so 4 to 6 months earlier

“Water is the key to life but, in frozen form, it is a latent force” – (Frans Lanting, renowned nature photographer).

The same notion applies to the virtually frozen sentiment that prevails in the Johannesburg homes market right now – and, indeed, most of the rest of the country. It is a latent force. It comes after the euphoria surrounding the Ramaphosa presidency has faded. And it may be a little while before it melts – almost certainly in the relatively near future. During the current biting chill in Johannesburg, it is difficult to imagine lying on a beach baking hot. In the same way, a buoyant market is difficult to imagine after experiencing such a prolonged negative cycle. 

That about sums up prevailing homes market sentiment. However, there are major initiatives under way to rehabilitate economic growth in South Africa. And the knock-on effects could begin to add warmth to the homes market outlook for the rest of 2018, and beyond.

Economic kick-start

For instance, I have faith in the top level task team that President Cyril Ramaphosa has commissioned to generate a US $100-billion investment inflow to help kick-start our economic recovery. Once the effects of this and other economic rehabilitation initiatives start to kick in, South Africa will begin to feel, and reflect, the inevitable improvement in sentiment. A fact I have noticed over the decades is that once people ‘feel’ the market has turned they have missed the ‘sweet spot’ by 6 months. That is the true bottom of the market was 6 months earlier. 

Until now, the virtually constant flow of negative economic indicators has dampened the homes market outlook. They have also distorted the incentive of current buyers. But buyers need to take a step back and consider that residential property investment is essentially a medium-to-long-term process. And the best time to engage in it is obviously in a downmarket. 

All the logic suggests that, with home prices still on a flat line, now is a near-perfect time for would-be buyers to take the plunge – even though the unexciting current price growth (3,4% in first half 2018*) is below par. Remember the stats we read are already a few months old. Meanwhile, it seems unlikely that interest rates will rise before 2019. This is another encouraging market factor.

A turning point

My firm belief is that the market is fundamentally at the bottom of the current curve. It will start trending upwards, if it hasn’t already started slowly. When the upturn does take hold, as it always does, it will prevail. For those who may have forgotten, the South African homes market has just been through two distinct cycles. The first was from a bullish 2000 up to the 2008 world economic implosion. It was a halcyon period in which home prices soared. We are now in the final throes of the second cycle, from 2008 to 2018, during which the bottom effectively fell out of the market.  Fast forward a couple of years, I have no doubt that those who buy now will look back and appreciate they bought well in 2018. 

* Source: FNB Property Barometer