Business Day - Home Front

Declining buying activity suggests a downsizing trend

We summarise highlights from the FNB Residentia­l Property Barometer and a special report on the impact of load-shedding on buyer preference­s

n August 2023, the growth of the

FNB House Price Index slowed to 0.8% year on year, down from July’s 1.2% (revised from 1.1%). This decrease is attributed to a decline in demand, as indicated by the bank’s internally developed market strength index, which relies on its property valuers’ database. FNB Senior Economist Siphamandl­a Mkhwanazi notes that the supply of properties for sale remained relatively stable and that mortgage volumes are now tracking lower than pre-pandemic levels.

ISURVEY INSIGHTS

FNB’s latest Estate Agents survey reveals that 67% of listed properties now take three months or more to sell, an increase from 56% in the second quarter of 2023.

However, 50% of interviewe­d agents anticipate an uptick in activity in the next three months, especially in the affordable market, primarily due to seasonal factors. Despite structural challenges such as electricit­y shortages and railway inefficien­cies, recent macroecono­mic data indicates resilience in domestic economic activity.

The labour market has surprised, with formal employment returning to prepandemi­c levels. Neverthele­ss, wage growth lags rising living costs, with compensati­on of employees increasing by 5% year on year in the second quarter of 2023, falling short of the 6.2% inflation rate during the same period. Surveyed wage expectatio­ns suggest a potential wage growth increase above inflation next year, offering some relief to consumers.

LOAD-SHEDDING IMPACT

FNB also released a special report leveraging insights from the FNB Estate Agents Survey for the third quarter to qualitativ­ely evaluate how the unpreceden­ted intensity of load-shedding over the past year has influenced buyer preference­s in the domestic property market.

Findings indicate a heightened demand for properties equipped with pre-installed solar solutions, particular­ly in the affordable market. Mkhwanazi points out that most agents estimate the premium for such properties generally falls within the 0-5% range of the purchase price but can go as high as more than 15% in specific cases.

This premium is partly driven by supply shortages in this segment, often resulting in buyer bidding wars. Conversely, pre-installed energy solutions play a less significan­t role in buying decisions in higherpric­ed property segments. Wealthier buyers prefer customisat­ion because they have better access to savings and funding options.

GLOBAL OUTLOOK

The ongoing global trend of decreasing inflation rates enables central banks to signal the conclusion of their interest rate hiking cycles. Forecasts indicate domestic interest rates have peaked, with a possibilit­y of a measured reduction cycle emerging in the latter half of 2024. However, shortterm prospects carry an upside risk, where another rate hike could occur if the US Federal Reserve raises rates further or if unexpected inflation occurs. In the medium term, the risk leans toward the downside, where a significan­t global economic slowdown and decreased inflation could prompt central banks to implement rate cuts sooner than expected.

Due to deteriorat­ing affordabil­ity, buying activity is declining across the market spectrum. Our indicators suggest a widespread trend of downsizing in the market, supporting buying activity in lower-priced segments.

The global housing market continues to experience moderation following a strong resurgence in 2021 and 2022.

This moderation is primarily attributed to rising debt costs and inflation, limiting demand. Most countries’ real house prices are decreasing, with underlying factors differing between advanced and emerging economies. In developed economies, prices are retracting from high levels, supported by relatively robust labour markets and housing supply shortages. Conversely, emerging markets face challenges such as elevated real interest rates, sluggish income growth and higher postpandem­ic unemployme­nt rates among younger demographi­cs, resulting in subdued demand from first-time buyers.