A survey by ABSA has revealed how South Africans feel about buying, selling, investing, renting and renovating property, as well as property market conditions in general.
In the first quarter of 2017, the South African economy entered a technical recession after experiencing two consecutive quarters of negative growth. This was brought about by poor economic performance in key sectors like wholesale and retail trade, manufacturing as well as financial and business services.
Major political developments like the sacking of Finance Minister, Pravin Gordhan, and policy uncertainty disrupted the exchange rate and financial markets. These factors and increased institutional and economic risks resulted in the country being downgraded to “junk status” by two major ratings agencies. For the rest of 2017, economic growth and confidence levels are expected to be subdued, with further depreciation in the exchange rate and average inflation of around 5.3% expected.
The one bright spot for consumers was the interest rate cut in July, with the expectation of further cuts later in the year.
The consumer sector
Lower food prices and fuel prices has resulted in inflation slowing in the first half of 2017. This, together with lower interest rates has eased the financial strain felt by many consumers although this has been tempered to a certain degree by tax increases and a struggling labour market.
Conditions in the consumer sector will in the rest of 2017 be driven by trends in prominent macroeconomic variables such as economic growth, employment, inflation and interest rates, which will affect household income, consumption expenditure, confidence levels and the demand for credit.
ABSA Homeowner Sentiment Index
The newly launched ABSA Homeowner Sentiment Index determines the level of positive sentiment regarding buying, selling, investing, renting and the renovating of property, as well as property market conditions in general.
Despite the economic headwinds facing the country, the Homeowner Sentiment Index found that South Africans were largely positive about the residential property market up until the third quarter of 2016, with 83% of consumers surveyed at the time having a positive perception of the property market. However, as consumers experienced financial pressure due to deteriorating economic conditions towards the end of 2016 and into 2017, this sentiment began to decline and ended on 74% in the second quarter of 2017.
Although most respondents were in the latest survey still confident that property is a secure asset, there were concerns regarding factors such as the state of the economy, politics and the impact of the country’s junk status.
How South Africans feel about buying property
The decision to buy property is largely driven by changes in people’s personal circumstances like getting their first job, getting married or having kids. 64% of consumer surveyed in the second quarter felt positive about buying property, up from 60% in Q2 2017.
The major reasons mentioned in favour of buying property were:
• Property still accumulates in value and is a good investment (32%)
• Prices are relatively low and there are bargains in the market (31%)
The biggest concern mentioned in the latest survey regarding buying property was that the economy is not doing well and is in recession (33%).
How South Africans feel about selling property
Making the decision to sell property is largely impacted by general economic conditions, property price trends and personal circumstances. Two thirds of those surveyed in the second quarter felt now is not a good time to sell property.
The top reasons mentioned not to sell property were:
• Property prices are low, and you won’t get the price you want for your property (41%)
• The economy is not doing well and is in recession (13%)
• Property still accumulates in value and is a good investment (11%)
What do South Africans think about investing in property
Getting rental income and achieving capital growth are the main drivers for property investors. 78% of the survey respondents were still positive about the buying property as an investment.
Their main reasons for investing in rentals properties were:
• It is still a good time investment (43%)
• Prices are relatively low and there are bargains in the market (18%)
•There is a demand for rental properties (13%)
The most prominent reason why respondents felt that it is not an appropriate time to invest in property is the state of the economy and concerns about the country’s future (20%).
Buying vs renting
68% of consumers felt that they would be better off buying their own property compared to 32% who preferred renting.
The top reasons in favour of buying property were:
• It is better to buy and pay off your own bond than rent and pay someone else's bond (33%)
• Prices are relatively low and there are bargains in the market (24%)
• Property still accumulates in value and is a good investment (21%)
The top reasons in favour of renting property were:
• Renting is cheaper (19%)
• Property prices are relatively high (11%)
• The economy is not doing well and is in recession (8%)
• Renting is more flexible, with no long-term commitment (8%)
The ABSA Homeowner Sentiment Index may remain under pressure due to the tough economic and socio-political climate. Consumers may put buying and selling property on hold until there is more certainty regarding the economy.
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