Sales continue, but impact of Lockdown on property market yet to be realised
Category Market Update
The onset of the Covid-19 Pandemic and Lockdown has put enormous pressure on the economy and property market with the outlook for demand and price growth set to be considerably weaker for this year.
According to the FNB Property Barometer, the Lockdown and closure of the Deeds Offices resulted in sales volumes plummeting by about 60% year-on-year for April. Although Level 4 is permitting most of the support structures of real estate - deeds offices, Conveyancers, municipalities (for rates clearances), mortgage originators and banks - to get back into operation, the pickup in sales volumes will be slow again in May.
There is still much uncertainty and it is difficult to predict how the market will play out over the coming months. FNB notes that price growth fell to 1.9% in April, down from 2.5% (revised from 2.8%) in March and the weakest level since December 2009 (following the 2008 Global Financial Crisis).
Expectation is that the economy will contract by as much as 7% to 10% according to the bank's outlook. Employment losses seem inevitable and businesses, both large and small, will face challenging conditions. A raft of policies adopted to support the economy could help limit long-term damage and set the stage for a rebound.
Generally, the outlook for the market is not great for sellers and somewhat worse than the Global Financial Crisis. FNB expects house prices to deflate by 5% and transaction volumes by 45% for this year compared to the 2009 year (following the 2008 Global Financial Crisis) when prices only declined by 1.5% and transaction volumes by 40%.
The depth of the Covid-19 financial crisis is also expected to mean that recovery will be drawn out due to pre-existing weaknesses in consumer fundamentals. Historically low interest rates, a decline in house prices and lower transfer duties (particularly in the middle-priced segment) will eventually support purchasing activity and facilitate a house price rebound in 2021.
It is expected that the market challenges will reverberate across all price segments but will be especially pronounced at the higher price levels. The affordable market below R1.5 million will be more resilient and is expected to be boosted by the lower interest rate, reduced transfer duty and demand from those "buying down" for financial reasons.
While Level 4 is providing some support for the market, it is anticipated that a move to Level 3 will provide further support. Structural reforms to reignite growth could also lighten some of the impact on the housing market compared to what would normally be associated with an economic shock of this magnitude.
The latest interest rate drop has taken the prime (mortgage loan) rate down to an almost historic low of 7.25%, adding further to the favourable buyer's market conditions. This has boosted buyer interest and there is a window of opportunity for both buyers and sellers in the market right now.
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Author: Gina Meintjes
