Property market remains positive, but rising CPI inflation could pose a risk

The property market continues to perform at levels which are higher compared to 2019, driven largely by the historically low interest rate which is likely to remain at the current low level until the end of this year.

The upside is that buyers continue flocking to the market looking for well-priced property. The banks are also still keen to lend which means that mortgage lending conditions remain favourable for buyers with the deposit requirements lower compared to prior years. In certain instances, first-time buyers are still able to secure full bonds.

SARB data shows that mortgage credit has risen steadily since the second half of 2020 and was up year-on-year by 5.6% in April (from 4.4% y/y in March). The preliminary data also shows that loan-to-price ratios (proxy for loan-to-value) have continued to rise with lenders seemingly willing to finance a bigger proportion of the purchase price.

While stock levels remain largely well balanced in relation to the number of buyers in the market, our agents are reporting stock shortages in certain areas and price categories, often the best sellers close to schools, transport and amenities.

According to Propstats data, about R1,5 billion in real estate has been sold in the Constantiaberg area during the first half of the year at an average selling price of R5,1 million. Properties below the R5 million price mark represent over 70% of all units sold. Although there is still some price volatility, we are seeing some properties achieving close to the asking prices. About seven high value sales have been recorded in Constantia Upper priced above R20 million.

Sales for the first half of the year across the Southern Suburbs amount to a further R1,6 billion at an average selling price of R3,4 million. Well over 80% of the sales were below R5 million. Most notably, two high value sales above R20 million in Bishopscourt.

A recent report from FNB shows that price growth is slowing. After eleven months of successive gains, house price appreciation slowed in May 2021 to 4.1% year-on-year (from 4.6% in April). The message to the market is that while it is a great time to sell, prices are still under pressure, and it is best to follow the advice of your agent in this regard.

Business confidence has strengthened to the best level in three years. The first quarter GDP growth was also better than expected, and analysts noted that if this is sustained, it could potentially reach pre-Covid-19 levels by the end of the year.

On the downside, there has, however, been a major increase in consumer inflation which has risen to a 30-month high of 5.2% year-on-year for May, up from 4.4% in April. This poses a real risk to the interest rate and may prompt the SARB to hike the rate by a potential 25 basis points.

Nonetheless, the outlook for the remainder of the year remains positive, the resurgence of infection numbers and onset of a third wave shows that we continue to operate in uncertain times where lockdown restrictions continue hampering full economic fulfillment.

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