Is it still a good time to purchase property?

With the escalation of the Eskom energy crisis and concerns about the economic impact on the already higher interest rate and cost of living concerns, the question arises as to whether it is still a good time to purchase property?

READ: First-time homebuyers' fears - how to overcome them

The short answer is yes, it is still a good market for property buyers and sellers too, says Samuel Seeff, chairman of the Seeff Property Group.

We have just come off two record years. While demand slowed since mid-2022, weighed down by the rapid rate hikes, the market still ended on a record high in volume and value terms. The 2022 achievement of 238,342 transactions worth over R334 billion across the whole property market, only just below the highs of 2021 (but higher in value terms).

The 2022-year also traded well ahead of the 2019 pre-pandemic year (205,414 transactions worth R236 billion) and significantly higher compared to the last property boom in 2015 (222,498 transactions worth R230 billion according to Lightstone).

Despite the market growth, price appreciated remained particularly flat, says Seeff. It peaked at around 4.5% (according to FNB data), and is now down to around 3%. The benefit of this is three-fold, he adds. Firstly, buyers are still able to find excellent value in the market. Secondly, sellers are unlikely to face wholesale price drops (except for those who are overpricing).

Importantly, it has also insulated the market against any potential bubble forming. Selling due to financial difficulty is only about 17% of all sales, and most people are still selling for other reasons. Financial-related selling is also still well below the 23% of the early pandemic period.

READ: Keep buying whatever you can afford, as soon as possible

Seeff says further that even at the higher prime rate of 10.75%, the interest rate is still a positive for buyers. It is still well below the average of around 13%-15.5% of the 2007/8 Global Financial Crisis (GFC) period and significantly below the average any time prior to this.

Mortgage loan conditions are also still particularly favourable for buyers, he adds. Deposit requirements are still below 10% (around 8.1% on average) compared to around 18.2% in 2017 and as much as 23.7% in 2007/8.

Bank approval rates remain well above 80%. Qualifying first time buyers can still secure a full 100% bond, sometimes with costs, depending on the circumstances. The raising of the transfer duty exemption threshold to R1.1 million and adjustment of the transfer duty brackets is a further boost for buyers.

Properties are generally also still selling fast, taking just 9.6 weeks on average depending on the area and price band. This is notably faster than the generally accepted market average of just over 12 weeks and almost twice as fast compared to the 17.6 weeks during the GFC period.

READ: First-time buyer? Here are 10 hidden costs of buying a house

While regional market variations mean that buyers will be able to negotiate more strongly in the inland provinces such as Gauteng, they would likely need to pay a bit more for property in the Cape and other high-demand hotspots.

The market below R1 million to R2 million is expected to remain the most active, but is also usually the sector which is most sensitive to interest rate and economic fluctuation. That said, Seeff continues to assess the market as stable, and it remains a good time to purchase property. It is also still a good time to sell, provided you price right for the area and current market conditions.

According to Antonie Goosen, Principal and Founder of Meridian Realty, residential buyers remain prudent despite interest rate peak and Budget Speech promise.

In late January, the Monetary Policy Committee (MPC) hiked interest rates for the eighth consecutive time, by 25 basis points, taking the repo rate to 7.25% and the prime interest rate to 10.75%. This is in an ongoing effort, by the South African Reserve Bank, to curb inflation which has been on the rise.

Goosen weighed in on the current economic climate, explaining that: "Yes, it is the eighth consecutive hike, but it is also a smaller hike than expected (some economists predicted a 50-basis point increase), and most indications point to the fact that the rate-hiking cycle may be coming to an end."

On the one hand, Goosen says, rental demand remains high and able buyers in the upper segment of the market are buying with a view to rent out their properties as a form of passive income. First time buyers and buyers in the lower to middle segment of the market, on the other hand, have been hard hit by interest rate hikes. This has made potential buyers think twice before investing in their own property.

SEE | Property24 101 - Buyer and Seller specific advice 

While sales volumes may have slowed, Goosen still sees properties being bought as investments and is still seeing semigration motivated sales. He maintains that top tier buying remains reasonably unaffected.
Goosen says, "Growing stock on the market will provide more choice for potential buyers and that will mean that sellers will not be able to ask the type of prices they were able to during the property boom that was fuelled by exceptionally low interest rates two years ago". He does, however, note that the Western Cape is the province with the lowest stock levels and as a result can demand higher prices.

"We all know there is still healthy competition between banks, competing on attractive loan terms with credit worthy, potential buyers," says Goosen, "So those who can afford it may be able to get 100% bonds or very favourable terms to make buying that much easier".

Goosen believes that the residential market is stable overall, but buyers are being prudent and waiting to see what action happens post Finance Minister Enoch Godongwana's Budget Speech that was delivered on 22 February 2023. "The actions of the government will speak louder than words," says Goosen.

Goosen notes that a positive point that came out of the Budget Speech was that there were "no major tax proposals" by the Finance Minister because of more efficient and effective tax administration and collection. The Minister said that personal income tax brackets will be fully adjusted for inflation and there will be no increases in the fuel and Road Accident Fund levy.

READ: How deposits work for first-time buyers

An outcome that relates directly to the property market is the announcement that the transfer duty bracket has increased by 10%, which means that buyers will not pay transfer duties on properties less than R1.1million. Goosen says, "This will help first time buyers, enter the market and will help revive this section of the market".

Also, following on from President Ramaphosa's State of the Nation Address (SONA), the Finance Minister confirmed that there will be a tax rebate to the value of 25% of the cost of new and unused solar photovoltaic (PV) panels (capped at R15,000) to those individuals who invest in solar. Goosen notes that this will only really benefit higher income households as the initial outlay to instal solar is expensive and out of reach of most South Africans. However, he also notes that homes with solar installed will have an advantage over other properties that don't when it comes to house sales and rental appeal.

Another announcement that made headlines after the Budget Speech was National Treasury proposing a total debt-relief arrangement for Eskom of R254 billion. This means Eskom will not require further borrowing during the relief period. 

These announcements will have an impact on how investors view South Africa as well as how confident the local market is to invest in residential property.

READ: Buying? What to do while you wait for a transfer to go through

 All in all, Goosen feels the property market is and will remain resilient, even though volumes may have slowed, and buyers are cautious. He says rentals will continue to be on the rise in entry level to mid-level properties. However, those with the means will capitalise on the rental boom by buying property as an investment. The high-end market will remain the most robust segment with semigration continuing and foreign property investment returning to places like the Western Cape. 

Overall, the key to selling in other provinces remains marketing the property at the right price as buyers are looking for value in their purchases. Goosen says, that the medium outlook in the property market will be determined by the implementation of what is outlined in the budget speech, which will also include upgrades to infrastructure and law enforcement, giving South Africans piece of mind and confidence to make the decision to invest in a home. 

https://www.property24.com/articles/is-it-still-a-good-time-to-purchase-property/31563