Whilst South Africa is presently in a recession, the real estate market has been on the decline for a number of years, say property economists.
John Loos, FNB property economist, said FNB’s May year-on-year house price index showed a growth of 4.7%. He said the single-digit growth in house prices was of concern as it was below inflation and would mean that a seller would sell their home at a loss.
Loos explained that a person who bought a house in 2001 and sold the house now could make a sizeable profit of anything up to 50 or 60%. However, a person who bought a house last year and was selling it now would be making a loss.
He said with the lower demand to buy property, houses stayed on the market longer. What was also problematic, he said, was that sellers refused to lower their asking price for fear of making a loss.
“All of this has been caused by a stagnant South African economy which has been in the doldrums for years,” Loos said.
“This, coupled with social tension the country is going through, does not bode well for the future as it will create political and economic instability.”
He did, however, say that this was not as bad as the housing bubble crash of 2008.
Another economist, Professor Bonke Dumisa, said sellers were holding on to their properties for longer in the hope that they would get a better price. He said they had become reluctant to sell.
Because of low demand and an oversupply of houses, Dumisa said this would be the best time for people to buy as “prices will be relatively lower” for people looking for a bargain.
He also noted that there were areas not affected by the change in the economy, among them gated estates.
Dumisa said people from these areas were generally well-off.
Keith Wakefield, of Wakefields estate agents, said the property industry was not immune to what happened in the economy. He said house volume sales were down.
Wakefield said the downturn in the economy would make it harder for people who wanted to buy property to get loans for bonds, even though the banks were keen on supplying them.
“Sellers of property must price their property realistically,” he said.
He added that people who overpriced their homes and did not take market-related prices into consideration would have difficulty selling them and would probably be forced to drop the price later.
He advised sellers to look at similar properties when determining their asking price.
Wakefield also encouraged buyers to try to have a substantial deposit when buying property because this would make their instalments more affordable.
Gary Nichols, provincial chairperson of the Institute of Estate Agents of South Africa, said members of the organisation had told him “they found the going hard”.
He said sellers were more conservative and buyers were taking more time deciding whether to buy a house.
He said sellers and buyers haggled over prices as sellers would not want to drop their price, while buyers wanted to buy a home at the cheapest possible price.
Estate agents, he said, had to ensure they worked harder. He also said banks were becoming more “pedantic” when it came to lending money in a bad economy.