A year of “great expectations”, but will it turn for property?

A year of “great expectations”, but will it turn for property, asks Seeff

Seeff chairman, Samuel Seeff
Seeff chairman, Samuel Seeff

While this is a year of “great expectations” with much hinging on the May Elections as the potential turning point for the economy and property market, Seeff chairman, Samuel Seeff questions whether it will be a turning point, or whether 2017 was perhaps as good as it gets for property prices.

Despite the early indications in 2017 and some glimmer of hope for the economy by the third quarter last year, the year ended with a notable decline in the luxury price bands, says Seeff. While it remains largely business as usual for the sub-R1.5 million sector, there has been a drastic decline of up to 50% in activity above the R3 million price band.

This, he says, as wealthy buyers appear to be in holding phase as they wait and watch, taking time out to see how things unfold. For the market, the impact is two-fold: fewer sales and wealthy buyers spending significantly less per transaction, at least half compared to prior years, and opting to take the balance off-shore, possibly earning lower yields compared to what they could earn from a good property market.

What we see in the property market is in many respects a good bellwether for how South Africans feel about the economy and future of the country, he says. We now see two distinct markets operating – the first, is the ordinary residential market below R1.5 million (up to R3 million, depending on the area), where buyers and sellers need to transact for various reasons such as expanding families, retirement or downscaling for example. Because of the still fairly benign interest rate, and despite sentiment, this ‘have to buy and have to sell’ market will continue to transact and well-priced properties can still find a buyer within a reasonable timeframe, regardless of what is happening on the politico-economic front.

The more interesting in terms of mirroring concerns about the future, is the second, or discretionary market, i.e. those with discretionary money who do not have to buy or sell. They are financially strong, politically savvy and hesitant about their commitment. These are the wealthy buyers who are cautious and questioning whether they want to invest in property given that it is roughly a 15-20 year investment and that property prices may well have reached their peak.

This has manifested in a drop in the number and value of transactions between 2017 and 2018 above R20 million on the Atlantic Seaboard and R15 million in the Sandton/Johannesburg top end areas.

On the Atlantic Seaboard for example, the value of the R20 million-plus market halved from R1.8bn to around R900 million. Transactions were predominantly residential, and only just over a handful were to foreigners (who are just as concerned about their investment in SA) and just about none to Joburg and other wealthy inland buyers. The picture is very similar in the upper end of Johannesburg and Sandton suburbs where it has been mostly residential sales.

A further consequence can be seen in the prices paid in areas such as Clifton, Fresnaye and Bantry Bay where only three transactions topped the R50 million price mark. Consider also that a single transaction of R290 million in Bantry Bay (late 2016) equates to almost one third of the total value of the R20m-plus market over the last year.

While 2017 was a good year for the upper end which overheated and needed a break, the decline is compounded by various factors include weak confidence, poor economic data and concerns about policies and politics, says Seeff.

What does this mean for the year ahead? Seeff says agents are reporting that while most sellers remain unwilling to bring down their prices, they beginning to look at lower offers which are coming in at 5% to as much as 25% below asking prices, and some are accepting these low end offers.

Overall, in the current overstocked market, serious sellers will need to make their asking prices attractive to buyers who have a lot of stock to choose from.

The interesting dichotomy, continues Seeff, may well be that President Ramaphosa’s new dawn and initiatives yield SA once again a stronger country, with good governance, respect for the rule of law leading to an uptick in the economy and property prices as the year unfolds. Those buying now in what is essentially a sideways market with flat prices, would then be considered the smart ones in a few years’ time as they will likely see good capital growth.

The flipside of this, is that if the election period turns problematic and the continued power struggles and concerns around Ramaphosa’s ongoing presidency persist, economic recovery will likely remain sluggish, and the current price levels could well be the highs, making investment in the current climate questionable.

In all, Seeff says the aptitude and investment profile of each individual will ascertain what and for how much they will buy in the current market. While it may be riskier now, you could ultimately see greater returns. On the other hand, it may well be a test for the prevailing wait-and-see attitude.