🔒 FNB property economist predicts house prices will keep falling

FNB house price analysis suggests that owners of luxury properties in Cape Town are in for more disappointment, with prices likely to continue falling on the Atlantic Seaboard. Siphamandla Mkhwanazi, property economist at FNB, says a downward adjustment in property prices is likely to continue. Biznews’s Jackie Cameron spoke to him. Have a listen to their conversation by clicking on the audio player below. More info in the piece that follows.

FNB house price analysis suggests that owners of luxury properties in Cape Town are in for more disappointment, with prices likely to continue falling on the Atlantic Seaboard.

Siphamandla Mkhwanazi, property economist at FNB, says a downward adjustment in property prices is likely to continue.

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In June, FNB released statistics indicating that Atlantic Seaboard properties lost more than 5% of their value compared to the same time last year, while upmarket eastern suburbs were not far behind. City Bowl residential real estate fell by about 2%. 

Property price growth is still below headline inflation, with the pressure largely in the higher end of the market, said Mkhwanazi.

This is because “supply-demand imbalances” are more severe at the top end.

Turning to the Atlantic Seaboard, Mkhwanazi says this upmarket Cape Town enclave is leading prices downwards in the Mother City.

In 2014, prices in the region far outpaced income growth in the region, plus there were many international buyers in the market. This appears to be correcting, with prices falling on the Atlantic Seaboard.

“Prices have entered negative territory as prices align to average household income in the Western cape,” he said.

Read also: Tough times for SA property investors as developers flood market with unsold flats

The Atlantic Seaboard tends to lead property cycles, pointed out the property expert. “Now that we are declining in that sub-region…we are likely to see this spilling over into other sub-regions,” continued Mkhwanazi.

Your losses will depend on where in the cycle you bought your property. 

However, this news is positive for buyers, said the FNB property economist, as it could be a good time to buy before prices start ticking up again.

“I might wait for a bit as it is unclear how low prices will go,” he said. 

“In my view, wait just a bit to see how low prices will go before getting into the market, but overall it is a good time to get back into the market.”

Turning to Johannesburg, the property expert outlined that there is excess stock, particularly in the new build sector. There is an oversupply of flats and townhouses, which has put downward pressure on prices.

“If you go further down in the price range, this pressure wanes. It’s mainly in the higher end of the market – which is where most transactions take place – where there is downward pressure on prices. This keeps a lid on inflation in Johannesburg, the main property market in South Africa.” 

From a rental point of view, gone are the days of double-digit rental escalation, said Mkhwanazi. “We’ll have to clear out the current stock before the situation improves for landlords,” he says. 

Looking at the reasons for the decline in property values, the FNB expert said that “it’s an “income story”, with households squeezed. Average wages are increasing at a rate lower than inflation. Until labour markets improve, you are unlikely to see the cycle turning, he said.

As demand dries up, prices have to adjust. It might just be the end of a cycle. Once affordability improves and first-time buyers come back into the market, the new cycle will start – with pressure from the bottom. 

Latest statistics show that interest is starting to come back as prices decline, especially in the higher end of the market, he added.