The 2nd Quarter 2014 FNB Estate Agent Home Buying Survey showed no further improvement in the residential property market in South Africa, with estate agents far more concerned about the “lack of supply” than residential demand.
The survey indicated a quarterly decline in domestic residential property activity, with estate agents surveyed mostly from SA’s major metro areas. The 2nd Quarter 2014 Residential Activity Indicator showed a decline from the previous quarter’s 6.76 to 6.33 on a scale of 1 to 10.
John Loos, Household and Property Sector Strategist at FNB Home Loans, says “this decline would appear to be slightly more than just negative seasonal factors which occur during winter, with our statistically seasonally-adjusted version of the Indicator also declining mildly from 6.47 to 6.39 over the 2 quarters”. However, he says the level remains solid, firmly rooted at the upper end of the “stable” bracket, a level from 4 to 6, and not far from the “positive” bracket of 7 to 8.
Loos says the percentage change in the Activity Indicator saw a year-on-year change in the Residential Activity Rating in the 2nd quarter of 2014 of zero percent, down from the previous quarter’s +2.9%, but not yet in negative territory. “This flattening out in year-on-year rate of change comes after positive year-on-year increases in 7 out of the 9 previous quarters since the beginning of 2012.”
Loos says it is too early to draw the conclusion that a declining trend has started, based on only one data point, despite a host of negative economic data, the possibility of a recession currently unfolding, as well as the January commencement of interest rate hikes. The subsequent rate hike in July will reflect in the results of the 3rd quarter survey.
Rise in stock constraints
Some agents reported experiencing “residential stock constraints”, which in part also reflect the slow building activity in recent years.
Loos says the 2nd quarter of 2014 saw a further rise in the percentage of agents citing stock constraints, as a factor influencing their near term expectations, to 22% from the previous quarter’s 18.5%. “This comes after an already considerable rise in 2013’s stock constraint percentage over that of 2012.”
Properties selling faster
The survey indicates that properties in the 2nd quarter spent less time on the market, an indicator of sellers pricing more realistically.
In the 2nd quarter of 2014 the estimated average time a property spent on the market before selling was 11 weeks and 6 days. This declined from the 1st quarter’s 13 weeks and 6 days and is the lowest since the 1st quarter of 2008.
However, fluctuations can be volatile and what’s most significant, according to the survey, is that the latest indicators continue to point towards a broadly declining trend in the average time on the market, after the 19 weeks and 1 day high at the beginning of 2011.
Sellers dropping asking prices
Property sellers having to drop their asking prices has also shown a decline, according to the survey, another indication of sellers being more realistic.
The 2nd quarter percentage of 78% declined from 81% in the 1st quarter. This is still “far above the level of around 30% back in early-2004”, but is the lowest percentage since the 1st quarter of 2010.
In order to sell, the estimated average price drop stayed the same at -8%, but is now significantly less than the -13% figure of late-2011, writes Loos.
So, despite no further increase in perceived activity levels, the agents surveyed continued to see the “market fundamentals” (market balance and price realism) improving, and a better balance between supply and demand, notes Loos.
SA property market outlook
However, the survey reports that agents were not “overly optimistic” in respect of possible near-term market activity increases.
This seems to have more to do with concerns over supply than the demand-side. In terms of expectations three months ahead, where agents can choose whether they think the market will “strengthen”, “weaken” or “remain the same”, 25% thought activity would increase in the near-future, down from 30% in the 1st quarter. However, 58% believed it would stay the same and 17% saw a decrease in activity.
While 26% of agents in the 2nd quarter survey noted “seasonal factors” as influencing their near-term expectation for the market, 27% cited “stock issues” with 22% saying this was due to stock constraints and only 5% because of too much stock.
Interest rates were only mentioned by 8% of agents as a factor (survey completed in May 2014), down from the 1st quarter figure of 36%. It will be interesting to see what the reactions are after the July rate hike, with economists expecting a further increase in interest rates in November this year.
“Economic Stress/General Pessimism” showed a decline to 7%, from 15% of agents in the 1st quarter, who saw this as a factor influencing their expectations in the near-term.
So while agents have not perceived further activity levels recently, they also do not expect significant near-term activity level increases to happen, according to the survey. “Their moderate expectation in terms of activity levels appears to have far more to do with growing supply constraints, while demand levels don’t appear to be a major concern”.
Where are property prices heading?
In terms of agent expectations regarding house prices in their areas over the following 12 months, 22% pointed to a 6-8% price increase, with 21% expecting a 5% increase. Some agents expect it to be more, with 11% expecting a 9-10% increase and 1% expecting more than 10%.
The average expected price increase of +4.5% is an improvement on the +3.7% projected by the 1st quarter’s respondents, according to the survey, although 4.5% remains moderate.
In summary, according to the 2nd quarter 2014 survey, estate agents “perceived no further increase in residential market activity levels relative to the same quarter a year ago, although at 6.33 on a scale of 1 to 10, the Activity Rating remains firmly in the ‘stable’ range.”
Weak demand is not so much a concern as stock constraints for agents, according to the survey. However, the average time a property spends on the market declined and so did the percentage of sellers having to drop their asking prices.
Despite agents’ growing concern around supply constraints, the survey indicates that they don’t appear to be “over-expecting” in the near-term, anticipating average house price growth of only 4.5% over the next 12 months. – Julia Hinton