Positive outlook for 2014 as the primary housing market continues to gather momentum

With 2014 set to be a milestone year for the country as we celebrate 20 years of democracy and head into an elections year that is likely to dominate the landscape, Seeff chairman, Samuel Seeff says that there is much to be upbeat about. 

Following five years of inhibited growth and, while still a telling tale of two halves, activity in the primary urban areas has strengthened notably this year and is now at the healthiest levels since 2009. Next year may well be year where we see the first signs of real growth since 2007 with potential double-digit price growth in the primary urban areas a real possibility, he adds.

From a Seeff perspective, we experienced one of the best winter periods with turnover of more than R2,5 billion for the June-August period and the demand has carried into the summer months. Our turnover for the year is up by 20% year-on-year and at the best levels in our almost 50-year history with all areas showing significant growth with similar agent numbers to last year, says Seeff. Primary areas in the Cape metropolitan areas have improved year-on-year by around 25% while a resurgence of activity in the Winelands/Boland and West Coast has seen turnover climb by 54%. The Garden Route, Karoo and Eastern Cape continue to see sustained year-on-year improvement in demand, although still primarily in the residential sector. The northern region, most notably the Gauteng metropolitan areas have seen turnover growth of 21% with the greater Sandton area up by 37% year-on-year on the back of strong demand. Following two years of back-to-back 25% growth, our KZN region's turnover is up even further by 31%.

Certainly, based on our turnover and agent feedback, there is much improved activity in the primary urban sector with some spill-over into other sectors. More buyers at show houses, multiple offers and better prices for sellers along with shrinking inventories all point to greater normalcy in the market, says Seeff. The banks continue to make gains in reducing the distressed stock and this in turn should further stimulate demand in the primary sector. On the back of this, there is good reason to be positive about the outlook for the housing market next year.

While still too early to talk about a major recovery especially in view of the wider economic landscape, we are moving in the right direction and there is now more balance in the market. Although price gains on the whole will remain conservative, sellers could look forward to shorter selling times and good offers provided the pent up demand persist into next year. We may even start seeing double-digit price growth in the high demand areas. The protracted low demand in the coastal and second home markets though is likely to continue with buyers still negotiating strongly.

Although there has been some marginal easing of the mortgage loan criteria, we do not foresee any real growth in mortgage lending as the continued high levels of household indebtedness will continue to impede overall sales volumes. The sub-R1,5 million primary sector is likely to be the most robust with the trend towards smaller, more compact and cost effective housing being the primary driver of demand. Secure complexes, gated estates and areas closer to schools, major arterials and feeder roads to business nodes are likely to see the biggest demand, says Seeff.

While economists are increasingly pointing to a potential interest rate hike towards the last quarter of next year, Seeff says that for now though the interest rate remains at the lowest level in more than three decades and will continue to boost home affordability. While there are increasing pockets of excellence where the pendulum is swinging towards a sellers' market, conditions will continue to favour buyers. For those that can and want to buy, the time is now. Sellers looking to trade up can now also look forward to better selling prices and can in turn take advantage of the favourable buying conditions.

Seeff says that the pressure on household budgets is likely to grow further into next year given the rather uninspiring macro-economic outlook. Prospective buyers are therefore cautioned to allow for a potential interest and other basic living cost hikes and should buy below their means rather than stretching right now. Now, more than ever, they should cut back on non-essentials and put their spare cash into their bonds and wherever possible and create a buffer against cost and interest rate hikes, he says.

Recovery of the market is likely to be slow and arduous with the primary, sub-R1,5 million sector picking up the bulk of the momentum as we have seen this year. Only once we start seeing more normalised sales volumes of around 25,000 per month that would equate to an increase of about 25% on current volumes, can we expect to see any real uptick in prices and only then are we likely to see a real spill-over into the secondary, luxury and trophy homes sector of the market. Although activity this year has been somewhat better compared to preceding years, this sector of the market is likely to remain under pressure with buyers very particular about what they are looking for and how much they are prepared to pay.

While the low interest rate certainly supports demand, the key macro-economic indicators, most notably economic and job growth will continue to be the drivers of the housing market. The modest economic outlook and continued uncertainty will continue to weigh on the market throughout next, but for now at least, we can take derive real encouragement from the improved activity and look forward to a somewhat more robust 2014.

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