Market set for late 2024 improvement

Conditions in the real estate market will likely remain tough for the next few months but improve towards the end of 2024, says Gerhard Kotzé, CEO of the RealNet property group.

Current and future shifts in the market

“Everyone is holding their breath at the moment to see which way interest rates are likely to move in the next two quarters if they move at all. The US Federal Reserve, which has the biggest influence on other central banks, seems set to maintain its base lending rate at around 4 to 5 percent. It has been struggling to contain inflation in the face of unusually high US employment numbers that are only expected to moderate in the second half of 2024.

“This will probably mean that in order to remain competitive in attracting investment, the SA Reserve Bank has no choice but to also hold off on any major interest rate cuts, despite the fact that SA’s inflation rate has more than halved in the past year and is now back within the 3% to 6% target range.”

The Reserve Bank is also known to be concerned, he says, about the upside risk for inflation due to the ongoing war in the Ukraine and now the conflict in the Middle East. “Winter in the Northern Hemisphere could see global food and oil prices rise steeply again as demand rises in the face of dwindling supply.

“Consequently, we don’t expect the average SA household to have much of an increase in disposable income next year or that there will be a big surge in homebuying.”

“Economic stress and low affordability will still be major challenges, with the start of the year usually bringing increases in school and transport fees, insurance premiums and medical aid costs, as well as various other regular expenses. These will probably not be matched by similar increases in wages or salaries. Then tax increases and the mid-year municipal rates and tariff hikes will put household budgets under further strain.”

For now, says Kotzé, loadshedding continues to destroy businesses and employment opportunities and cause banks to become more cautious about extending credit. “And, as a result, there has already been a further decline since last year in first-time buying, which was the main force behind the remarkable post-pandemic market recovery.

“Nevertheless, from an investor’s point of view, we believe we are now at or very close to the bottom of the market cycle and that the first half of 2024 will be one of the best times to buy real estate in the past decade. For one thing, many commercial and private users have now installed their own solar or wind-driven power plants and continue to take the strain off the national grid. This means we can look forward to less loadshedding, more jobs and ultimately, more home buyers.”

In addition, loadshedding and the unreliability of internet connections have had the effect of drawing many people back to their offices and boosting corporate demand for prime office space. This has cleared the way for the conversion of many more lower-grade buildings into affordable apartments suited to first-time buyers and buy-to-let investors.

“Finally, building plan statistics show that there are far fewer new projects coming onto the market now, so the oversupply of existing flats and townhouses will steadily be absorbed until a supply-demand balance is reached.”

At that stage, he says, prices will start to show bigger increases again, especially if interest rates have also moderated. “We expect this to take place in the latter half of 2024, but until then, we advise all owners who want to sell quickly to set very realistic, market-related asking prices with the help of a seasoned property professional.”

For buyers and sellers, the insights provided above are worth considering as 2024 unfolds.

Writer: Meg Wilson