Is The Residential Property Market In South Africa Peaking?
The January 2016 FNB House Price Index showed a year-on-year increase of 6.8%, confirming that a potential peak in house price inflation is in the making, as the month-on-month data have been slowing down since late last year.
Specifically, the 0.9% September reading has now slowed to an 0.4% figure in January, indicating complete loss of growth momentum. Furthermore, there are quite some economic data pointing to a slowdown in economic activity for 2016, potentially even hinting at a recession.
Just open any newspaper, and one can follow the chatter on the rising interest rate environment, weaker investor sentiment, slowing consumer confidence figures, export commodity prices in the doldrums, etc. All of these developments point to a very likely slowing in economic activity in 2016, and negatively impacting employment and household income growth.
As briefly mentioned in an earlier post following the interest rate announcement, analysts are looking at a (real) GDP growth rate of close to 0.5% for 2016, down from the 1.5% in 2015. Reasons cited were continuing slowing due to global commodity price weakness, rising interest rates in South Africa, and of course most recently, the national major drought issues.
Interest rates are expected to gradually rise in 2016, eventually reaching a Prime Rate level of 11.5% by year end.
Inflation (as measured by CPI – Consumer Price Index) is meant to cross the 6% upper band mark in 2016, up from 4.6% in 2015, on the back of a weaker Rand currency, and higher food prices (drought impact being felt!).
Forecasts for the average house price growth is heading lower from the 6% reading in 2015, to 4.8% in 2016, to read 3.8% in 2017. Keep in mind the inflation numbers above, which would bring the ‘real growth’ data into negative territory! The rental market might therefore slightly outperform the home buying market over this period, hereby lifting yields on residential properties.
About the author: The above article “Is The Residential Property Market In South Africa Peaking?” was provided by Xavier De Buck, your top-producing Northcliff (Johannesburg) real estate agent with Pam Golding Properties. Xavier has been nationally recognized and awarded for providing service excellence, exceptional property sales, whilst exhibiting the highest level of professionalism. With over 15 years combined experience as a real estate agent and real estate investor, if you’re thinking of buying or selling property in Northcliff, Xavier would love to share his property knowledge and expertise.