South Africa Housing Market Points to Looming Recession, Says Expert

It's still a stage of holding breaths for South Africa as the risk of recession remains high, says real estate strategist, Times Live reports.

According to John Loos of FNB Home Loans, the risk of a recession in SA is brought about by the sluggish year-on-year growth of the gross domestic product (GDP) which only increased 1% in the third quarter of 2015 on top of the slumping economy.

The economic environment is a strong influence to South Africa's residential activity that it can even dictate business cycles, says Loos.

In the fourth quarter survey by FNB, residential activity remains at the "stable" bracket, a little close to what is regarded as the "positive" bracket.

"However, while activity levels are still fairly solid, it is the indicator's direction that is of concern," cautioned Loos. From a +12.18% positive growth "high" in the third quarter of 2014, the year-on-year activity ratings dropped -8.93% by the fourth quarter of 2015.

The decline does not only concern the residential property sector, but also the already weak SA's economic growth performance.

"Real economic growth was a mere 1% year-on-year in the third quarter, a rate which is insufficient to promote any significant job creation, and more likely to cause net job loss," said Loos.

"So, while sentiment in the residential market - due to a home being seen by many as an investment, not just a consumer item - can often keep this market at solid levels of transaction activity until after vehicle sales have already fallen significantly, the growth fluctuations in this activity nevertheless do appear to have a 'leading indicator' nature."

The Estate Agent Activity rating seems to imply that the various negative impact on SA's economic growth are yet to impact the economic growth figures, which means a further "downside" is still in sight in the near term.

"While the likes of the mining, manufacturing and agriculture sectors feel commodity price, drought and interest rate impacts quite quickly, this often feeds through to many of the services sectors of the economy with a bit of a lag. The indicator thus appears to suggest that economic growth figures may still deteriorate further in the near term," said Loos.

"While the residential market is still a little way off from being seen as 'weak'', the direction of the residential activity rating does point to estate agents as a group experiencing the mounting pressures on the SA economy's growth."