Residential market activity weakens after the early-2018 ‘Ramaphoria’ spike

By John Loos, Household and Property Sector Strategist at FNB.

‘Ramaphoria’ has subsided and life goes ‘back to normal’ in a stagnant economy for the Residential Market, according to the 2nd quarter FNB Estate Agent Survey.

Although disappointing, given the raft of poor economic news recently we were not too surprised to see our 2nd quarter 2018 FNB Estate Agent Survey pointing to the excitement of a change in the country’s President passing on, and a return to “normal” for the Residential Market in what remains a stagnant domestic economy.

The 1st quarter FNB Estate Agent Survey had seen a noticeable jump in the FNB Residential Activity Rating. It was believed that much of this had to do with a significant improvement in sentiment that was strongly linked to key political leadership changes, most notably the change in the country’s President early in the year. We saw bounces in the FNB Consumer Confidence Index and the RMB Business Confidence Indices at the same time, and the Rand performed relatively strongly at the time too.

But leadership changes take sentiment only so far, and as the novelty wears off, the Household Sector continues to experience recessionary economic conditions, rising tax burdens and rising fuel prices as Oil prices rise. That key sentiment driver, the Rand, has begun to come under pressure once more. And more estate agents are beginning once again to perceive “General Pessimism/Economic Stress, while those who perceive “Positive consumer Sentiment“ have diminished in number in the 2nd quarter survey.

KEY POINTS

• After a 1 quarter “spike” in the FNB Residential Activity Rating in the 1st quarter of 2018, we believe driven largely by a sentiment jump on the back of key political leadership changes early this year, ongoing economic weakness and rising costs of living appeared to resume their key influence on the housing market, with the Rating falling back from 6.18 in the 1st quarter of 2018 (5.81 on a seasonally-adjusted basis) to 5.28 (5.37 on a seasonally- adjusted basis) in the 2nd quarter of 2018.

• Agent perceptions of Economic Stress/General Pessimism” have bounced back significantly, while those experiencing “Positive Consumer Sentiment” have declined sharply.

• While declines in the Activity Rating are broad-based regionally, Gauteng remains at stronger levels than the Major Coastal Regions of South Africa, while Namibia still has the weakest Activity rating within the broader Rand Area.

• Estate agents in Lower Income/Priced areas still provide stronger Activity Ratings than those at the High End of the market. This is understandable given the variety of tax and tariff increases in recent years, which have been biased more against high income earners and higher priced homes.