Economic Update

Published 30 Oct 2017

While South Africa’s economy has emerged from recession and is showing signs of sustained growth, that has yet to feed into the property market, meaning residential sales and new construction will likely remain subdued for the rest of this year.

Weaker demand and downward price corrections are seeing more owners withdraw properties from the market or decide against listing homes, according to First National Bank’s (FNB) latest House Price Index.

Released in August, the survey of the housing market reported that price rises had again returned to slow growth following a brief period of acceleration, and are expected to remain modest for the rest of 2017 – for the third successive year.

After house-price growth reached 0.88% between end-2016 and March this year on the back of an improvement in wider economic performance, in the period from January to July average growth in prices was 2.2 percentage points down on last year, though with inflation taken into account, this number slips into negative territory.

A buyer’s market

For those looking to buy property, the lowering of prices could tilt the market in their favour, at least until demand rises again.

Agents are reporting a number of owners lowering their asking prices, with cuts averaging around 9.8% – the highest since 2012.

According to the FNB report, the duration a listed property remains on the market before being sold is getting longer, with the average period increasing from 12 weeks in 2014 to 15-16 weeks in early 2016.                                                  

Real prices could decline even further in the near term as sellers come to accept changing conditions in the market.

Demand rises for apartments and townhouses

With the economic downturn making it more challenging for prospective house buyers to obtain loans, bank lending rates were cut in July to 10.25%, down from 10.50%, to spur continued home purchases. However, the current climate – plus increasing urbanisation – has already contributed to a growing trend towards apartments and away from freestanding houses, according to data issued by Statistics South Africa (Statistics SA) in late September.

For every 100 houses given planning approval in 2013, there were 26 apartments signed off on by municipal authorities. By 2016 this ratio had risen to 100:59, indicating a more than doubling of the demand for flats over a three-year period.

There was a more modest rise in appetite for townhouses against houses, with the ratio rising from 100:25 in 2013, to 33 for every 100 freestanding dwellings approved last year.

Additionally, the value of new approvals for flats and townhouses rose by 16.9% year-on-year (y-o-y) between January and June this year, increasing to R11.4bn ($832.2m).

According to Statistics SA, the value of residential construction work completed this year over the January to June period increased by 18.6% y-o-y. Flats and townhouses drove this growth with a 24.2% y-o-y rise, representing a combined worth of R6.6bn ($481.8m), from R5.3bn ($387.1m) in 2016.

Overall, the value of new freestanding dwellings grew by 1.4% y-o-y in the first half of this year, reaching a total value of R12.93bn ($941.7m).

Construction sector feeling the pinch

Statistics SA reported a 0.2% dip in the value of planning approvals for residential properties over the first seven months of the year to R30.6bn ($2.2bn), with houses seeing a 0.4% decline in plans passed by municipalities.

Combined with a 22.1% y-o-y drop in non-residential building approvals, which saw overall approvals fall 5.2% y-o-y for the January to July period, indicators are that construction will continue to struggle to fill books in the fourth quarter and into the new year.

Lower levels of residential and non-residential construction can be seen in the recent shedding of jobs in the sector. The construction industry lost 11,000 positions in the second quarter out of a quarterly total loss of 34,000 across the economy, according to the latest employment survey by Statistics SA. Only manufacturing, which shed 13,000 jobs, fared worse.

The second quarter losses for the construction industry represented 1.8% of all positions within the industry. This came on the back of 12,000 positions that were added in the first quarter, and could reflect cuts made as a result of lower expectations for the property market in the latter part of the year, as evidenced by reductions in planning approvals for new projects.