The Technical Recession and The Property Market

Nov 2, 2018 | All, News

Stats SA announced in early September 2018 that South Africa is in a “technical recession”.

This is when two consecutive quarters of negative economic growth occur, the likes of which have not been seen since the 2008/2009 global financial crisis.

SA entered into a technical recession when the economy contracted by 0.7% in the second quarter after a deplorable performance in the first quarter. Deputy President David Mabuza has stated that it is not crisis time yet, just a challenge.

But a technical recession is not good news for the country’s economy. During a recession, unemployment increases and spending power declines. In October, unemployment figures rose to almost 28%.

There’s also uncertainty around the property market. Will house prices tank? Will homeowners slip into negative equity? Should buying plans be put on hold?

Crispin Inglis, CEO of PropertyFox, the consumer-focused online property company, says there is no ‘one-size-fits all’ answer because so much depends on an individual’s own circumstances.

Possible Effects on the Property Market

In the world of real estate, the technical recession translates into a buyers’ market where the supply of properties outweighs the demand from buyers, giving purchasers an advantage over sellers in price negotiations.

Unable to afford the costs of a mortgage, more properties enter the market, with some falling claim to bank repossession and distressed property sales.

Overall, it’s bad news for sellers, but possibly good news for savvy buyers who have been saving up.

Inglis says that negative equity situations, while not very common in South Africa, are always a risk.

“Negative equity is when a home loan exceeds the value of the house secured on it. If you take out a home loan, it helps to put down a sizeable deposit upfront to reduce the size of a bond and mitigate risk. You should also consider purchasing a more modest property to keep a cash cushion on-hand should there be another downturn.”

Conversely, if you’re a seller and find yourself in negative equity, Inglis advises waiting it out if possible until the market recovers. Alternatively, he suggests renting out your home or putting extra payments towards your monthly mortgage, if this is financially viable.

Unable to afford the costs of a mortgage, more properties enter the market, with some falling claim to bank repossession and distressed property sales.

What you can do

Although the recent reports of the technical recession have caused some concern, an optimistic outlook might be worth considering. Here are some things you should consider to get the better of this period:

  • Consider speaking to a knowledgeable property professional about property prices in your area.
  • Make sure you do thorough online research to truly understand the current prices and check multiple sources.
    If you’re looking to sell your property, be prepared to adapt your prices to the changing market conditions. Your property professional should be equipped to counsel you on this. Request a written property valuation, also referred to as a Comparative
  • Market Analysis (CMA), with supporting statistics of actual properties which were sold in your area, as well as what is currently available ‘For Sale’ in your area.

Saving with PropertyFox

Saving money during this period would be really important.

“Buying or selling a home in South Africa is expensive, with little room for negotiation on most costs, like lawyers’ fees and transfer fees. We advise actively looking for other ways to keep fees down,” says Inglis.

“When selling a house, you can save vast sums in estate agent commissions, which vary from 5% and 6.5% for traditional estate agency charges, right down to 1.5% for a company like PropertyFox which is focused on keeping fees low for sellers. Commissions savings can run into the tens or even hundreds of thousands – if you add these savings to your deposit on a new property, the loan amount can be greatly reduced.”

Anyone buying property right now must go into the process with their eyes wide open, “No one can guess when this recession will end or when property prices will start to climb well again. So, if you’re looking for security from your investment then property is a good option. However, investing wisely by doing your homework is essential,” says Inglis.

At PropertyFox we want to make sure you get the most out of your property journey with us; from helping you save more with our low commission fee to making sure your property valuation is accurate with the best data science. Contact us today and we will take it from there.

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