Housing in Southern Africa February 2015

Housing

Residential growth

A ccording to John Loos, House- hold and Property Sector Strat- egist Market Analytics and Scenario Forecasting at First National Bank Home Loans, economic events look set to be more positive in 2015, compared with 2014, with the drop in global oil and food prices looking set to drive consumer price inflation sharply lower and household real disposable income growth higher. These events are expected to lead to further residential market strengthening and mildly higher house price inflation this year. “But our forecast of a strong increase in residential building completions will have little to do with further residen- tial demand strengthening in 2015, and more to do with prior years’ de- mandgrowthand the steady build-up of existing home supply constraints over the past three years.” He explains, “We believe that the time has come for the residential development sector to supply new stock to the market at a significantly faster rate, and as such forecast 2015 m² of residential completions to grow by 21,6%.” The mood in the residential prop- erty industry is a generally positive one, and so it should be. The market is far from booming, but has shown a nice solid performance over the past three years since 2012. Rising demand has gradually mopped up ‘excess supply’, and a noticeably in- creasing percentage of estate agents participating in the FNB Estate Agent Survey have been pointing to short- ages in residential units for sale. This improving balance between supply and demand has, in turn, driven some positive house price inflation in real terms

A noticeable growth rate in the level of new residential building completions is expected to be the highlight in 2015.

Therefore, from an estimated 1,5% in 2014, we forecast an acceleration to 2,5% in real disposable income growth this year. Forecasters are inclined to underestimate the impact of both strong negative as well as

oil price fall emanates from major global investment in various forms of energy production capacity, notably oil and shale gas. The FNB interest rate forecast is for the South African Reserve Bank

positive shocks, and this oil price slump is certain- ly big enough to be classified as a shock. The down - side risks to the g r owt h f o r e -

(SARB) to lift its policy repo rate gradually higher from the current 5,75% t o 6 , 5 % b y year-end, tak- ing prime from 9,25% to 10%.

‘The mood in the residential property industry is a generally positive one.’

The reasoning behind this mild rate hike at a time when inflation looks set to fall through the floor, comes from the SARB’s desire to normalise rates gradually upward fromwhat are believed to be abnormally low levels by South African standards. Even if SARB increases rates slightly this year, the positive

casts, however, remain the same two as highlighted previously - South Af- rica’s electricity supply reliability and capability, as well as the ability of la- bour relations to hold up better than in 2014. For the time being, though, it all appears to lookmore positive than back in the first half of 2014,

when strike action disrupted output significantly. The expectation of stronger real householddisposable income growth in 2015 compared with 2014, leads to a forecast of further increase in residential demand. “However, we would expect the pace of demand

impact of lower inflation in not only boosting economic growth, but also in translating into higher real dispos- able income growth, is expected to sustain further growth in housing demand.

over the past three years (refers to where house price inflation exceeds Consumer Price Inflation). And look- ing forward into 2015, the spectacular

February 2015