2014 Outlook: A Balanced Market (The Bugle)

The start of a new year provides the perfect time to reflect on where the property market has come from and take a view on what we can expect to happen over the next twelve months. With every coastal town in South Africa inundated with visitors over the year-end holidays enjoying the sunny beaches and splendour of the surrounds it becomes an obvious thought to ponder – investing in a holiday home. Coastal properties have born the brunt of the tougher economic climate over the past few years but things have changed over the past twelve months and indications are that 2014 could be similar. 

As estate agents active along the Dolphin Coast our 2013 figures are up 41% on the prior year. Our sense is that demand for residential homes has improved and supply is steady or decreasing within certain price categories. The best known measure currently available in the market for the relative strength of demand and supply is the FNB Valuers Residential Market Strength Index. Currently on a scale of 1-100 the Supply rating is given as 56.24 and the Demand rating as 51.67. The overall Market strength index is provided as 47.72, which tells us two things. It is firstly a relatively balanced market and, secondly, with demand ratings still below the supply ratings we are unlikely to experience significant price escalation, even though we have seen the gap between supply and demand narrow significantly. The forecast by FNB for 2014 in terms of price growth of residential properties is 6,5% and is similar to the anticipated 6,6% which the final figures for 2013 are expected to show. As a buyer this would indicate to me that it is no longer a market in which I can dictate the terms of a transaction as a relatively equal strength rating between buyers and sellers means that transactions are happening at fair market prices and as long as the property is priced correctly, a sale is likely. There are some exceptions to this general trend. Homes priced above R10m, especially in areas represented by a large number of non-primary holiday homes, remain in a buyers market where the supply of homes available for sale significantly outweighs the demand for these homes.

Property economists would temper our enthusiasm for a more buoyant property market in 2014 by drawing attention to the peak in the growth of the market demand strength, the downward trend in both the GDP growth figures and the growth in overall compensation of employees. The growth in transfer duty revenue is an interesting one to watch and although this shot up during 2012 and 2013, reflecting the good times the residential property-related industry has been feeling, the data indicates that this growth rate has peaked. Another excellent statistic to watch if you are looking to predict a trend is the SARB Leading Business Cycle Index. This growth rate has been flat which does not add anything to the case for resurgent property prices. We therefore find ourselves in a very good position. We are in a stable, balanced market, which is not expecting any dramatic change over the next twelve months and is currently rewarding buyers and sellers that embrace a realistic view of pricing.

(Author: Andreas Wassenaar, published in The Bugle, 8th Jan 2014)