Sentiment drives SA property market - is there any hope?

The generally gloomy outlook for South Africa has made many potential property buyers ultra-cautious, as they play a 'wait-and-see' game. Might the 2024 elections bring about a positive turnaround?

Sentiment has always driven markets, and with the gloomy outlook for South African property, buyers and sellers might be wondering whether there's any chance of an uptick in the future.

Positive sentiment may only come after the 2024 General Election. In the 'Ramaphoria' period following our President's election in December 2017, there were three to four months of extraordinary growth in SA's property market.

Of course, there is a long list of reasons why the current market is unlikely to change direction, including load shedding, unexpected blackouts, water supply, the political landscape, corruption, high unemployment rate, the Russia-Ukraine war, and let us not forget, escalating interest rates.

Since the beginning of the interest rate hiking cycle, which began in November 2021, the Reserve Bank has raised the interest rate by 4.75%, further dampening buyer demand. Looking at FNB's House Price Index annual growth averaged 2.7% year-on-year in April, while the Estate Agents Survey for 1Q23 showed "lengthening time-on-market, suggesting a mild deterioration in the demand-supply balance".

The ANC has lost so much credibility, and this will show up in the polls, with the result likely to end up in a coalition. Then sentiment will ripple into many areas, and if there is more faith in the future of SA, a bounce back in the rand is inevitable, and I believe the property market will improve.

There is a lot of room for improvement, as the slow growth of property re-sale prices relative to new build prices indicates - banks say the gap is 30%, but it might be closer to 50% in more top-end areas.

How the value bands are affected

Across the board, most sellers are settling at a point of discomfort - at levels they never thought they would have to.

The lower end below R1.5 million is generally not impacted to the same degree as the luxury market, where expensive properties are a discretionary purchase and therefore more sensitive to how people feel.

Homes above R5 million or R6 million would have sold for R7 million to R8 million five to seven years ago, so prices have taken a big knock.

We've all been worn down over the past 15 years, since the 2007/8 financial crash, and many have lost faith in property. Now we just need an upturn in positive sentiment for buyers to come back.

Yet opportunity abounds

On the upside, there are plenty of good buying opportunities for those committed to staying in SA, and able to invest wisely, with an eye on the long-term benefits of buying property. And sellers taking a huge knock can invest the capital for double digit returns at current interest rates. A decent portfolio manager can achieve between 10 to 15% pa returns.

Who would have thought a down cycle could have lasted this long, and while some suburbs and regions have fared better during these times than others, there is still very little growth in house prices.

When sentiment turns

If there is a coalition government, the response from the marketplace could impact property prices positively and quickly after the election, depending on the parties involved - let's hope so!