What lies ahead for residential property this year

Herschel Jawitz, CEO, Jawitz Properties

Unless we see a massive positive shift in consumer and business confidence, 2018 will be much of the same. This slowdown extends to the Western Cape – a niche market in itself - where property price growth has fallen below 10% for the first time in at least three years. Times are tough, but yet almost ironically, there has never been a better time to buy property.

In Gauteng and KwaZulu-Natal, the slowdown in property price growth has reversed with a marginal uptick in prices, possibly signalling that prices have bottomed out. However, this needs to be seen in the context of property prices growing by 3.5% to 5% in nominal terms, which is below the current rate of inflation. Other than in the Western Cape and more specifically Cape Town, property prices declined in real terms by the end of 2017.

Downsizing from large homes that are expensive to maintain and run (and because of security) is a definite trend in cities like Johannesburg. Over time, this trend will put pressure on property prices for these sorts of homes.

Buyers in the sweet spot

With a slow economy, low consumer confidence and price sensitive consumers, the key driver for buyers is value - a combination of position, price and size - at virtually every price level. We are even seeing this at the top end of the market. In most regions across the country, supply continues to exceed demand with cautious buyers spoilt for choice. Buyers are looking for the best deal they can get showing no fear of loss or urgency if they cannot get the property they want where they see value. This includes a reluctance to get involved in significant improvements to a property, believing they can pay the same value-driven price for a home that is ready to move into.

Despite a challenging economy, first time home buyers continue to show strong interest in the market especially in the sectional title market, which offers low maintenance, secure and affordable living. The percentage of first time buyers in Cape Town is noticeably less than in most other parts of the country including Johannesburg, given the higher prices in the sectional title market in Cape Town. As you move further out of the main metro areas (nationally), the Cape Town metro areas including the Atlantic Sea board, City Bowl and Southern Suburbs, your purchasing power and value for money start to improve.

Buyers are also benefiting from increased competition among the banks. We saw a gradual improvement in the rate concession from the banks in 2017 and expect this trend to continue in 2018.

Sellers shouldn’t sit on the fence

The strong advice to sellers is that now is not the time to test the market to see if you can get your price because for most, the answer will be ‘no’. Pricing your home in the current market requires a strong dose of realism and acceptance that this is a buyers’ market. There is a strong negative correlation between the length of time a property stays on the market and the final selling price. For sellers, the competition is not for a smaller pool of buyers, but rather which other sellers you are competing with to attract these buyers. It all comes down to price.

2018 will continue to be a great buying opportunity for property investors. Similarly to buyers, tenants are also very price sensitive and rental escalations are generally at the 6% mark. Many lessors are focusing on keeping good paying tenants at a slightly lower escalation. Yields will continue to increase gradually as rental escalations marginally exceed property price growth.

It’s going to be an interesting year.