After a contraction in South Africa’s real gross domestic product in the fourth quarter of 2016 and the first quarter of this year, economic growth rebounded to 2,5%.
The second-quarter growth was to a large extent influenced by strong growth of 33,6% quarter-on-quarter (q/q) in agricultural production. The forecast is for the economy to grow by a real 0,6% in 2017, with growth expected to rise to 1,1% in 2018.
The forecast is for inflation to average between 5% and 5,5% in 2017 and 2018. The major risks to the inflation outlook remain the rand exchange rate as well as fuel and electricity price trends.
Interest rates were kept unchanged at the South African Reserve Bank’s September Monetary Policy Committee meeting on the back of inflationary risks related to movements in and the outlook for the rand exchange rate. The forecast is currently for interest rates to remain stable up to year-end and throughout 2018.
Although the forecast is for slightly higher economic growth, inflation to remain within the inflation target range of 3%-6% and stable interest rates in 2018, consumer finances may only show some marginal improvement next year.
Homeowner Sentiment Index shows that the percentage of survey respondents with positive sentiment regarding property market conditions, improved to 81% in the third quarter of 2017 from 74% in the preceding quarter. The third-quarter index reading increased to a level that was much in line with the corresponding quarter last year, and was mainly driven by improved economic growth and consumer financial conditions in the second quarter of the year, after the country credit downgrades earlier this year that negatively affected confidence levels over a wide front.
Property-buying sentiment improved further to 68% in the third quarter of the year after rising from a recent low of 60% in the first quarter. The main reasons mentioned in favour of buying property were the following:
Prices are relatively low and there are bargains in the market (28%)
Property still accumulates in value and is a good investment (27%)
Interest rates are low (8%)
The positive sentiment towards selling property hit a low of only 34% in the second quarter, with a slight improvement to 37% in the third quarter. The top reasons mentioned to sell property were the following:
Property prices are relatively high and you may get a good price when selling (35%)
Many people want to own property, which is supportive of selling (10%)
Property still accumulates in value and is a good investment (7%)
Investing in property
In the third-quarter survey, as much as 82% of respondents were positive about property as an investment, which was much in line with sentiment in the fourth quarter of 2016. Reasons mentioned in the third quarter why it is an appropriate time to invest in property were as follows:
It is still a good time to investment in property (31%)
Prices are relatively low and there are bargains in the market (15%)
There is a demand for rental properties (14%)
A total of 79% of survey respondents displayed positive sentiment in the third-quarter when asked whether it is a good time to renovate or do alterations to a property. The most important reasons mentioned in this regard were the following:
Renovation increases the value of a property (45%)
Building materials are currently well-priced (13%)
It is good to constantly upgrade a property, especially if trying to sell (10%)
Buying rather than renting property
The majority of consumers (74%) surveyed in the third quarter of 2017 indicated that it is better to buy property than to rent. The main reasons mentioned 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 (29%)
Property still accumulates in value and is a good investment (24%)
Prices are relatively low and there are bargains in the market (23%)
The Absa Homeowner Sentiment Index recovered noticeably in the third quarter of 2017 after economic developments and the country credit downgrades had a particularly negative impact on property market sentiment. However, macro conditions showed some improvement during the second quarter and into the third quarter, which are believed to have had a positive effect on consumers’ perceptions regarding the property market.
However, a subdued economic growth outlook, developments on the political front, policy uncertainty and trends with regard to government finances may impact the country’s credit rating, confidence levels and eventually property market sentiment towards year-end and in early 2018.