HEIBERG ESTATES NEWSLETTER: JULY 2019

Dear Property Partners

SA REAL ESTATE MARKET UNDER RENEWED DOWNWARDS PRESSURE…

july newsletterWe all know without doubt that our beloved country, holds the necessary abilities to conquer the renewed feeling of doom and gloom if we focus, regroup and take hands across all borders and rebuilt our extremely fragile economy. Furthermore, we desperately need to get credibility in the eyes of international investors – the fact that our growth domestic product declined by a staggering -3,2% as recorded recently, is a clear indication of failing investor confidence and further leading to very little of the much hoped new job opportunities to our existing almost 10 million unemployed people. We have one of the highest unemployment rates of 29% (the worst since 2008), in the world – in comparison the latest statistics for the EU shows 6,5%! Only Palestine, Bosnia, Namibia and the Congo have a higher unemployment rate than South Africa! This is alarming and completely unacceptable!

There is a lot of responsibility on the shoulders of our leadership to now for once and all, come out of the blocks and lead by example. We all hold the opinion enough is enough, that there has been enough commissions of enquiries and that those responsible for the corruption era that encircled our country and our people for especially the last decade, must pay for their deeds. Especially since the vicious circle effect that it has caused in absolutely every facet of our economy, will still be felt for many years to come as government is instituting all possible ways to get more money in the virtually emptied state coffers, enforcing financial rescue measurements and rising taxes on the consumer. Each of us already being a victim and also paying for the deeds of those culprits in the bid to save institutions like Eskom as well as most of our already bankrupt municipalities with ever increasing rates and taxes, electricity- and water bills, additional taxes on our fuel price, etc. just to mention a few examples. And collectively having a major impact on people’s increasing inability to afford to buy a property.

The impact of this state of affairs, will have a prolonged influence on property sales and property price increases where the SA Property Market remains to be under pressure and this scenario not expected to change in the foreseeable future. Yes, the decrease of the .25 point repo rate as announced by the SA Reserve Bank, will moderately boost buyer sentiment and contribute to some people’s willingness to start considering, committing and buying property again. Thus, hopefully leading to more activity across the property spectrum.

Unfortunately the delayed and much awaited clarification and guidelines in specific referral to land expropriation without compensation, is definitely having an increasingly negative impact on our property market, as many sales over the past 12 months were lost due to these uncertainties quoted to Heiberg Estates as the mayor reason why prospective buyers and developers, won’t commit in writing and pulled out of transactions at the very last minute.

Yes, true that Pres Ramaphosa did ensure overseas investors at the recent G20 summit held in Osaka, Japan that the land uncertainties will definitely not have a negative impact on their investments in SA whom he described as the “Gateway into Africa”, and that our country is on a threshold of a new exciting era – seeing is believing Mr President! Presently with so many in-fights, it remains difficult on a political level to “sell” South Africa to the outside world and potential investors are waiting on the side lines for clarity. Obviously, a savvy investor won’t invest millions of dollars in our country, if he does not know if and how property rights will change in the foreseeable future.

The projected stable and growing economy still must been proven to all of us being aware and really experiencing the growing feeling of hopelessness and disillusion amongst so many of our people. We are facing and battling rising costs in our almost stagnant economy. Little clear direction on both political- and economic front as well as the implementation with definite timelines of clear strategies to pull us out of the doldrums, has been established and formulated.

Homeowners selling due to financial pressure are on the increase and presented 19% of Sellers recorded during the 2nd quarter versus the 16% of the previous quarter and of those Sellers, 60% opted to rather rent than buying a cheaper property. Downscaling due to life change represented 23% of all sales whilst emigration driven sales was 13.4% of all sales.

The impact of all the above mentioned, is very visible throughout all sectors of our fragile SA Property Market where several factors point to under how much stress it is, especially looking at the decline in loans that indicated the downwards trend amongst property developers and buyers. In a recent report brought out by John Loos, FNB Property Sector Strategist, he pointed out that new mortgage lending is still on a decline trajectory, where the value of new mortgage loans granted year-on-year, declined by -7.82% as recorded by the SA Reserve Bank for the first quarter of 2019 versus the -2.07% decline recorded during the last quarter of 2018. (The second quarter statistics for this year still to be published, but also expected to be in the doldrums). Commercial mortgages remained in negative territory where a decline of -29.6% year-on-year was recorded during the first quarter this year, developments/new building activity took a huge knock with a decline of -27.5% versus a decline of -6.25% of loans granted for existing properties. Collectively, all this reflecting the contractionary economic environment, clearly impacting on all sectors of our real estate market.

Some of the latest interesting facts and statistics:

  • Due to affordability, cheaper properties are most in demand and the low income band (average R395 000 or lower) year-on-year price increase was recorded at 16,3% versus the upper income band of 3% (average R1,3m or lower) and luxury value (average R2,3m) at 0,8% as recorded by FNB during the first quarter. (Q2 statistics still to being awaited).
  • There has been a slight shortening of the average time a house has been on the market before being sold – 14 weeks and 1 day versus the 15 weeks average recorded during 2018.
  • On the Commercial side rising vacancy rates are expected to increase due to the weak state of broader Government finances, rising operating costs coming forth of above-inflation hikes in municipal rates and utilities tariffs, upwards pressure on capitalisation rates and supply exceeding demand – an economic growth rate of 2% is needed to halt the rising vacancy rate in the near term and we all are aware that our economic growth rate decline by a staggering-3,2% during the first quarter. Total Commercial Property Returns are projected to remain in single digits this year.
  • Looking at property prices being under pressure, especially in the higher price bands, it generally transacted at less than the initial asking price as recorded during the first half of this year. The estimated average discount on asking price is larger in the higher price ranges, recorded at 14% during the 2nd Quarter versus the 10% national average, whilst 98% of Sellers had to drop their asking price in order to sell.
  • Johannesburg and Pretoria property prices showed the same trend during the first quarter of this year where the estimated property price increase year-on-year as recorded by the end of the first quarter 2019, was a very mild 1,5%.
  • Less demand also translated into less sale transactions where sale volumes as recorded by the Deeds Office, are also on the decrease – in the first half of 2019 there were 5.6% year-on-year recorded sales and at these levels transaction levels are approximately 65% below the historical peak of 2006, but still 20% above the historical tough in 2009 during the global financial crisis.
  • A recent FNB Survey shows that the most buoyant commercial conditions was in the Industrial Property Market which showed to be the strongest of the 3 major commercial property sectors, where the average time for occupied industrial properties before being sold, was 21.2 weeks versus the 22.77 weeks for retail and 23.02 weeks for office space. On the rental side industrial properties also came out tops.

It is clear that our President is battling to introduce the reforms and clarity on policy, needed to boost investment and confidence in the SA Economy, and that he is facing a lot of resistance within certain factions of the ANC. Thus, stalling the hope of getting the long awaited policy clarifications and definite implementations with time frames in place, also not forgetting definite details regarding the controversial topic of land reform, still to be formulated as well. Fitch Ratings revised SA’s outlook last week from stable to negative on the back of low GDP growth, but affirmed their SA rating at BB+. On the other hand, Moody’s concerned referral to yet another massive state financial injection announcement to save ailing ESKOM, does not bear our economy well with growing fears that we could in November be downgraded to Junk Status by Moody’s. The ongoing onslaught against our SA Reserve Bank, not assisting to ease the internal turmoil and fierce disputes within ANC circles as well as fading foreign investment.

Going into the second half of this year, the economic outlook continues to be bleak, and for most of this year the Buyer’s Market is expected to continue with our extremely price sensitive and competitive Real Estate Market. Supply exceeds demand by far, especially looking at our middle- to upper income areas. As stated by the mid-2019 FNB Property Market Forecast, the biggest risk for our fragile property market emanates from our deteriorating Government debt situation which increases the risk, that at some point bond yields as well as property capitalisation rates, will rise further and exerts further downward pressure on property values.

In general, at this stage of the year, there is sill expectations that house prices might show low single figure increases of around 3,5% for 2019 versus an inflation projection of around 4,5% average this year. Irrespective the circumstances, people will always need a roof over their heads and that is where Heiberg Estates and its professional Team remain to be on 24/7 standby for any property advise and service you or a friend might need, so please CALL US SOON on 012 362 4628 (24/7)!

For any interesting property related information, please refer to our website: www.heibergestates.com or call Bambie Heiberg on 083 654 3773.

Best and warm regards.

Your truly

Bambie & Heiberg Estates Team

P.S. EXCITING NEW RELEASE: PECAN PLACE – VIDEO: https://youtu.be/fTf27T15tkk

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