The economics of property and prices

The economics of property and prices

Category News

The weakness of the overall economy this year has directly impacted the property market. Factors such as the GDP growth, investment, employment, income and interest rates all affect consumers' ability to buy property, and consequently drive prices either up or down.

Much of this is beyond the control of ordinary sellers and buyers. Economic and property markets are also cyclical by nature and subject to fluctuation. They seldom remain stable before either going into decline or rising again, with property prices following these ups and downs.

Unpacking some of the factors, we observe:

Economic outlook – although the recent investment successes scored by President Ramaphosa and other steps taken are positives for the economy, there are often unexpected external factors from the global or emerging market landscape. A good example is the rand recently recording the steepest drop in 10 years, attributed to concerns about Turkey and emerging market economies.

Interest rate and banks’ appetite for lending – the interest rate and the banks’ appetite for lending also affect demand for property. The decision to keep the interest rate flat and the banks signalling that they are still keen to lend, are positives which should encourage buyers to take advantage of the interest rate savings.

Legislation and government policies – the VAT and other indirect tax hikes have impacted household budgets and in turn, affect how much buyers can spend. Policy uncertainty around property ownership is another concern for the market. Often, once consumers absorb the impact of these, things tend to normalise again.

Affordability Pressure – the VAT increase, steep rise in the cost of food, fuel, utilities and overall household expenses, has put further pressure on disposable income and affordability. People can afford less than they could before and this has affected property prices (i.e. they are not increasing). Buyers are very sensitive to price and its imperative that a property's asking price is realistic and not inflated, otherwise it simply sits on the market for extended periods and becomes stale, thus attracting little to no buyer interest. 

Demand and supply – real estate markets function according to the principles of demand and supply and we are currently seeing downward pressure on demand and increased stock levels (property listings). There are now fewer buyers with more property stock to choose from. The inevitable consequence, is that they are offering lower prices. This, in turn has the overall effect of downward pressure on property prices.

The important take-out is, that here are plenty of opportunities despite the challenges. The market is still active, but it requires a different approach, and this is where skilled and experienced agents who have been through the market ups and downs, make the difference.

No matter how dire the economy or property market may seem, people still need to sell and buy homes, and there is definitely still a market for correctly priced properties

Author: Seeff