Centurion's Market Overview - 2022 to date

Centurion's Market Overview - 2022 to date

Category MARKET NEWS

A market overview as at mid 2022 - what lies ahead for the remainder of this year

Keageoz Property Solutions (KPS) has conducted an assessment of Lightstone Property's latest statistical report released during this quarter.

The National house price index as per the graphical illustration below shows a clear indication of the capital growth experienced within each of the Provinces.

Gauteng has shown as per usual just about the lowest growth rate whilst the Cape Provinces has continued on it's merry way with prominent capital growth across all residential segments.

2021's numbers peaked of course as a result of the backlog experienced in the market due to the COVID-19 pandemic and repercussions caused as a result thereof.

Low interest rates and the low cost of capital certainly stimulated market appetite but it is clear that the steady quarterly increase has had an impact on market appetite and house price inflation.

It is of critical importance however to note that despite the fact that house price inflation remain positive for the moment, it is evident from the table to follow that pricing has deteriorated from the numbers displayed during the peak experienced in 2021 and already shows an average .5% negative growth per month across all segments.

There were many factors that played a roll in the numbers portrayed of the residential property market amongst others;

• COVID-19
  • Retrenchments and salary cuts prompted reserved financial commitments despite low interest rates that persisted.
  • Semigration strategies for mostly service orientated career paths stimulated the coastal and Cape residential market in volume and pricing.
  • Employers' forced "work-from-home" strategies had an impact on where employees chose to reside. Close to work no longer a requisite as commuting were minimized.
  • Availability of material resources in the development arena influenced the cost of construction directly
• Cost of Capital
  • Historically low interests rates prompted more Tenants to buy causing stagnant growth in the rental market.
    • Payprop's most recent rental index exclaims the fact that the COVID-19 slump has at last showed signs of a turn-around with low fractions of positive growth in rental prices.
  • The cost of acquisition for first time buyers were lower than the cost of a lease.
  • Renewed strategies by existing home owners to unlock equity in their assets through second mortgages opting for expansion on existing assets rather than replacement thereof.
• Disinvestment by multiple property owners
  • The negative growth in rental pricing along with high vacancy rates, defaults by Tenants and a collapsed legal system prompted disinvestment of secondary Buy-to-Let assets
  • Increased cost of living as a result of price increases across all boards prompted disinvestment

Centurion is one of KPS's prime portfolios and the past 12 months represented numbers one could expect in direct correlation with the National house price inflationary index and also catch-up post lockdown.

Analyses of the Centurion sales statistics

As mentioned above, in reference to the graph of Centurion's sales numbers and pricing, it is clear that;

• The National house price index is accurate as growth indicated across all segments has been in line with the numbers depicted.
• A catch-up strategy with an explosive increase in the volume of sales post lockdown has played out which is evident from 2021's exceptionally high volume of sales and price increases.
• Substantial positive growth especially shortly after the initial lockdown restrictions were uplifted is noticeable.

It is critical though to note that the volume of sales for 2022 (as per registrations to date), is well behind the annual expected volume in comparison with sales of 2021. The market has definitely slowed down significantly.

This is a concerning factor as the cost of capital is still relatively cheap, employment conditions have basically returned to normal yet the impact and uncertainty of the after effects of COVID-19 is prominently evident in the lower than anticipated volume of sales.

What to expect for the remainder of 2022 for the Centurion market?

In order to address this question properly, factors to be discussed should be;

• Rising interest rates
  • It is expected that the interest rate will be increased by 0.5% during the course of the next quarter.
  • It is anticipated that the prime interest rate will increase quarterly for the remainder of 2022 and 2023 to a bank objective of 10% by close of 2023.
  • The rate at this point should be maintained for a period of 18 months before relaxed interest rates will be considered.
  • The rise in interest rates will hamper positive growth in this region as the cost of capital will become more expensive.
  • Buyers would have to buy within their means as salary and income increments does not correlate directly with the rise in interest rates.
  • Affordability will be directly affected.
  • Buyers would have to adopt a more conservative acquisition strategy and definitely base their decisions on a longer than statistically dictated retention period. (Holding onto their assets longer before reselling)
  • The banks would most likely tighten up their credit criterias disposing of cost-plus lending strategies and leaning towards deposit based lending.
• Growth in the rental market
  • The severe increase in the cost of living recently will be a deciding factor when making Buy vs Rent decisions - the latter soon proving to once again becoming favoured.
  • The demand for rental assets will increase and Landlords would likely be able to show some positive growth in asking rental prices
  • Investors would be in a position to expand their portfolios with less risk of vacancy as has been the case in the passed 2 years.
  • Smaller homes will be in higher demand.
  • Pricing on smaller assets will likely show more prominent growth in value.
• Market related pricing
  • Sellers were able to achieve above market related prices whilst low interests rates stimulated the market, this will soon change.
  • Market related pricing would become the norm again
  • Less Buyers in the market given the cost of capital thus Sellers will have to price to sell as your assets would compete with a number of other assets
  • Supply will soon exceed demand bearing more leverage to Buyers

Buyers and Sellers however should look at the upside of all the daunting figures mentioned.

KPS and its active ambassadors will remain in a position to advise objectively about the market circumstances.

All the financial institutions will maintain a favourable lending strategy given their sales targets that has to be achieved.

The average loan to value granted by the banks is now the highest that it has been for the passed 14 years - 94%. This means that the banks still require less of a deposit.

KPS in association with their bond origination liaison Greendoor Homeloans will ensure that mutually beneficial sale solutions are always secured.

Do not be ignorant when buying your next home - invest the time to liaise with one of our ambassadors and sharing your real estate requirement to the finest detail as this mutual relationship of trust can only be established if all the cards are on the table

Author: Johann Cronje