select
|

Positive economic indicators could trigger a property market turnaround

Statistics released by Statistics SA on 5 September 2017 have revealed that South Africa is officially no longer in recession. The announcement of a 2.5% annualised economic expansion during the second quarter of this year joins other positive indicators including a decrease in Consumer Price Inflation (CPI) and a stable repo rate.

While consumers may be hard pressed to spot any immediate effects in their bottom line, Bill Rawson, Chairman of the Rawson Property Group, says this combination of economic factors could have a very positive effect on property market activity.

“It’s early days, and too soon to make any definitive claims,” he says, “but this may be the first step towards a turnaround in the national property market. The industry has had a tough couple of years with a nationwide market contraction, but economic growth and increased consumer spending power could be enough to boost the market upwards again.”

Rawson says that the decrease in CPI inflation combined with a growing GDP should take some pressure off consumers and improve their ability to save. This is a vital step for those hoping to purchase property, as deposits, transfer fees,  legal and bank costs generally require a considerable upfront payment.

“CPI has dropped below 5% for the first time since late 2015,” he says. “Price increases for everyday purchases – groceries, transport, utilities and basic services – are finally slowing in their meteoric climb. Things aren’t getting cheaper, of course, but lower inflation and a more buoyant economy means that over time income will go a little further, bonuses and salary increases will have more of an effect, and it’ll get just that little bit easier to put some money aside every month.”

This isn’t the only positive effect a lower CPI has on property purchasing power, however.

“Interest rates are closely linked to CPI,” says Rawson. “If inflation is too high, the Reserve Bank is likely to increase interest rates to slow it down. When the CPI decreases, however, they have also been known to drop interest rates to keep inflation within their target of 3 – 6%.”

Interest rates were already cut by 25 basis points in July 2017 after a surprise decision by the South African Reserve Bank.

“This could have a huge effect on the affordability of finance for consumers,” says Rawson, “and make property purchases quite a bit cheaper in the long run.”

This, combined with the recent deceleration in average house price growth, could see property investments heading towards their most affordable levels in years.

“We’ve had 3 consecutive years of slowing house price growth, and 2 years of effective house price decline when you adjust for consumer inflation,” says Rawson. “This isn’t entirely due to the economy – there’s also a bit of natural price correction going on: a common phenomenon after a period of high growth when market dynamics swing back in favour of buyers, and essential for preventing unchecked real estate growth ‘bubbles’.”

The result, however, is that house prices effectively remain at 2015 levels thanks to negative (CPI-adjusted) price growth. Buyers also have greater negotiating power given the relatively low demand for properties at present.

“Add to that the effects that the decreasing interest rate and growing economy have on property affordability and consumer spending power, and it’s reasonable to assume that we’ll be seeing an increase in property market activity soon,” says Rawson.

As for long-term forecasts, Rawson says much rests on the economic impact of political events scheduled for the end of this year.

“We’re optimistic that the rand, our economy, and the property market will remain resilient,” he says, “but only time will tell for sure.”


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 22 Jun 2018
      The rental market in many Johannesburg suburbs has shown encouraging signs of revival this year but it remains a competitive market and landlords who best cater to their market’s needs will reap the healthiest returns.
    • 22 Jun 2018
      Home design is constantly evolving to reflect the changing needs of society. We look at some of the ways in which our use of space is changing.
    • 22 Jun 2018
      While estate agents can help the seller with correctly pricing the property and marketing a property to the right pool of potential buyers, at the end of the day it’s the impression that the property will make on buyers that counts the most.
    • 21 Jun 2018
      Anyone who’s ever been involved in a building project that’s gone wrong will appreciate the importance of adequate insurance cover in the construction industry.
    • 21 Jun 2018
      A recent news story about a blind tenant caught in a legal battle with his body corporate over letters and notices he was unable to read and consequently comply with has raised the question: what are the legal obligations for landlords with disabled tenants?
    • 21 Jun 2018
      A trend that’s taken the world by storm in recent years is that of hygge (pronounced: hue-guh), a Danish concept that is about creating intimacy, connecting with loved ones and taking pleasure in small, ordinary things.
    • 20 Jun 2018
      Buying or selling real estate isn’t as easy as it is portrayed sometimes, especially if there is a death of a party during the transaction which can make it awkward, tricky and inconvenient.
    • 20 Jun 2018
      With interest rates remaining at historic lows and banks continuing to compete for mortgage finance business, first-time buyers with funds at their disposal are currently well-placed to gain that initial foothold on the property ladder, particularly in the light of the slightly lower growth rates currently experienced in residential property values.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK