eBusiness Weekly
Conditions in the South African real estate market are expected to improve in 2024.
This is according to Gerhard Kotzé, CEO of the RealNet property group, who believes that moves by the US Federal Reserve will dictate where South Africa’s interest rates go.
The US central bank is expected to maintain its base lending rate at around 4 percent to 5 percent as it struggles to contain inflation amid unusually high unemployment data, which is only expected to moderate in the second half of 2024.
“This will probably mean that in order to remain competitive in attracting investment, the SA Reserve Bank has no choice but to also hold off on any major interest rate cuts, despite the fact that SA’s inflation rate has more than halved in the past year and is now back within the 3 percent to 6 percent target range,” Kotzé said.
Inflation relief for South Africa
The SARB is also concerned about the potential upside risk to inflation due to conflicts in Ukraine and Gaza.
“Winter in the Northern Hemisphere could see global food and oil prices rise steeply again as demand rises in the face of dwindling supply,” Kotzé said.
“Consequently, we don’t expect the average SA household to have much of an increase in disposable income next year or that there will be a big surge in home-buying. Economic stress and low affordability will still be major challenges, with the start of the year usually bringing increases in school and transport fees, insurance premiums and medical aid costs, as well as various other regular expenses.
‘‘These will probably not be matched by similar increases in wages or salaries. Then tax increases and the mid-year municipal rates and tariff hikes will put household budgets under further strain.”
Load shedding has also destroyed business and employment opportunities, which is causing banks to be more cautious about extending credit.
Absa joins the chorus of interest rate warnings for South Africa.
“As a result, there has already been a further decline since last year in first-time buying, which was the main force behind the remarkable post-pandemic market recovery.”
“Nevertheless, from an investor’s point of view, we believe we are now at or very close to the bottom of the market cycle, and that the first half of 2024 will be one of the best times to buy real estate in the past decade.“
This is due to many commercial and private users installing their own backup power systems, meaning that they can look forward to less load shedding, creating more jobs and, ultimately, more home buyers.
“In addition, load shedding and the unreliability of internet connections have had the effect of drawing many people back to their offices and boosting corporate demand for prime office space.
‘‘This has cleared the way for the conversion of many more lower-grade buildings into affordable apartments suited to first-time buyers and buy-to-let investors.
“And finally, building plan statistics show that there are far fewer new projects coming onto the market now, so the oversupply of existing flats and townhouses will steadily be absorbed until a supply-demand balance is reached.” With interest rates moderating, prices will also start to show bigger increases again, which is expected to kick off in the second half of the year. — BusinessTech
