Confidence up, but…
Absa’s Homeowner Sentiment Index (HSI) for Q2 20223 reveals consumer confidence in the residential property market.
Confidence up, but…
Absa’s Homeowner Sentiment Index (HSI) for Q2 20223 reveals consumer confidence in the residential property market. Click through to read about its key findings.
Homeowner Sentiment Index
Q2 2023
The Absa Homeowner Sentiment Index (HSI) is an indicator of the overall state of consumer confidence in South Africa’s property market. This research presents market players with an understanding of the overall confidence level of consumers. It also unpacks more nuanced insights through measuring various aspects of consumers’ confidence levels, referred to in this report as subindices. Among these, we measure the sentiment of consumers concerning the current timing for buying, selling, investing, buying rather than renting, and renovating property.
Key summary
Consumer confidence in the South African property market improved by 5pp to 78% in Q2 2023, from 73% in Q1 2023. Despite the challenging economic environment, when asked whether respondents “are currently confident about the property market in South Africa? By this thinking it is a secure asset that will create sufficient wealth over the longer term”, responses started to reflect a slightly higher level of optimism of future recovery.
- The overall confidence in Q2 2023 of 78%, is 5pp higher than in Q1 2023 but reflect a similar level as measured in Q2 2022.
- Sell and buy rather than rent sentiment remained low and at the same level as in Q1 2023.
- Concerns about current uncertain economic conditions, weak Rand , high interest rates, the increasing cost of living and affordability were only some of the drivers for the declining buy sentiment.
- Investing sentiment at 72% in Q2 2023 improved by 2pp quarter on quarter. There was a marginal improvement of 1pp to 73% in sentiment towards confidence to renovate, with customers recognising that maintenance and renovations will increase the value of their properties in future.
HSI Results
The HSI reflects the percentage of survey respondents who are confident about the South African property market.
When asked whether respondents are currently confident about the property market in South Africa? By this thinking it is a secure asset that will create sufficient wealth over the longer term, 78% responded positively.
The overall sentiment score of 78% is 5pp higher than in Q1 2023, reflecting some level of optimism despite the current tough economic environment.
- Positive factors: Property is and always has been a secure asset (59%), property always increases in value (58%) and creates long-term income (56%), and the property market will improve (48%)
- Negative factors: The main drivers of positive and negative sentiment-related factors mentioned by survey respondents were as follows (percentage of respondents in brackets):
Homeowner sentiment sub-index results
Comparing Q2 2023 to Q1 2023, there has been a 2pp decline in the buy sentiment, sell and buy/rent sentiments remained flat and invest and renovate sentiment increased slightly by 2pp and 1pp respectively.
Comparing Q2 2023 to Q1 2023, there has been a 2pp decline in the buy sentiment, sell and buy/rent sentiments remained flat and invest and renovate sentiment increased slightly by 2pp and 1pp respectively.
Buying property
Buy sentiment reflected a third consecutive decline in Q2 2023 by 3pp to 58%. This is also 12pp lower than the 70% recorded in Q2 2023 and the lowest level since Q3 2018 when 57% was recorded.
- Positive factors: Property is always a good investment (62%), property accumulates in value (50%), you can make good profit (41%) and people are desperate to sell (40%).
- Negative factors: High interest rates (68%), the economy not performing well (59%), cost of living is high (57%) and rand weakness (54%).
In Q2 2023 there was a decline in buying sentiment across all consumer segments, except for renters (non-owners) that remained flat. Buying sentiment in the first-time homeowner segment of the survey’s respondents declined by 4pp, repeat homebuyers by 3pp and investors 3pp compared to the previous quarter.
Selling property
Considering the current market, 43% of respondents consider it an appropriate time to sell property. Sell sentiment remained flat at 43% in Q2 2023 compared to Q1 2023.
- Positive factors: You can get a good price for your property (56%), good to rather sell if you can no longer afford the property ( 46%) and it is good to sell if you are upgrading (44%).
- Negative factors: The economy is neither doing well (55%) nor stable (56%), rand weakness (50%) and rather keep property as an investment (48%).
In Q2 2023 there was a 4pp decline in selling sentiment in the first time buyer consumer segment, but repeat buyers sentiment to sell improved slightly by 2pp and investor respondents still indicated that you can get a good price for your property, with sentiment in this segment increasing by 20pp in Q2 2023 compared to Q1 2023.
Buy-Sell Gap analysis
Comparing the sentiment of buyers and sellers in the market reflect that both the sentiment to sell and the sentiment to buy remained low in Q2 2023, and the gap further contracting to 15%. In Q2 2023 both buyers and sellers less positive about currently buying and selling, which were reflected in lower activity (applications for credit and property transfers) in the property market and lower house price growth.
Investing in property
In Q2 2023, 72% of respondents considered it an appropriate time to invest in property. Sentiment for investing in property improved slightly by 2pp from 70% in Q1 2023.
Investing sentiment was however still 6pp lower than in Q2 2022. The main drivers of positive and negative factors are (percentage of respondents in brackets):
- Positive factors: Property always accumulates in value (59%), you will make a good return (52%) and there is demand for rental properties (51%).
- Negative factors: The economy is not performing well (62%), the rand is weak (54%) and prices are too high (50%).
When asked whether it is considered an appropriate time to invest in property, considering the current market, the investor customer segment of respondents reflected a 10pp improvement in overall positive sentiment compared to Q1 2023.
For the investors who do not consider it an appropriate time to invest in property, fewer respondents were concerned that tenants can’t afford to pay rent, with a decline of 2pp. There were also more respondents citing that there will be higher demand for property in future, with the sentiment score increasing by 9pp.
Buying rather than renting property
In the light of current market conditions, 61% of respondents considered it an appropriate time to buy rather than rent. The sentiment for buying rather than renting remained constant compared to Q1 2023.
- Positive factors: It is better to own rather than rent (59%), if you can afford to, rather buy (49%) and renting Is more expensive (46%).
- Negative factors: Renting is more flexible, with less commitment required (48%) and buying includes maintenance costs/transfer fees which can be expensive (44%) and cannot afford to buy property right now (37%).
Affordability and cost of ownership in addition to the belief that renting is still more flexible, stands out among the factors detracting from buying sentiment.
Renovating property
The survey indicates that 73% of respondents consider it an appropriate time to renovate or make alterations on properties in Q2 2023, considering the current market. Sentiment for renovating and making alterations improved by 1pp compared to Q1 2023 and 2pp compared to Q2 2022.
- Positive factors: Renovating increases the value of your property (66%), renovating will bring better returns when selling (61%) and it’s good to update your property (57%).
- Negative factors: The economy is not performing well (50%), cannot afford to renovate right now (45%) and materials are expensive at the moment (42%).
Sentiment to renovate or make alterations increased in the repeat buyer segment by 7pp but declined in investor and first-time homebuyers segments by 2pp and 6pp respectively, with these segment respondents indicated that they want to spend sparingly until the economy stabilises.
Property market sentiment at a provincial level
In Q2 2023, 63% of respondents resided in the three provinces with the highest response rates, namely Gauteng (28%), the Western Cape (22%) and KwaZulu-Natal (13%).
Sentiment in these three areas for Q1 2023 was as follows:
Conclusion and outlook
- Despite a challenging economic environment, the overall confidence in the South African property market improved by 5pp to 78% in Q2 2023, from 73% in the previous quarter. This reflects that the n=1277 respondents surveyed in Q2 2023 are more optimistic about the outlook of homeownership amid a challenging economic environment.
- The cycle of rising living costs and deteriorating affordability led to subdued growth in property market activity (applications and deeds office transfers) and declining growth in house prices, and continued in the second quarter of 2023. Even though concerns about high interest rates and economic instability are driving more people to continue renting and delay realising their dream of homeownership, a lot of respondents still believe that property is always a good investment and that it is always better to own rather than rent if you can afford to buy.
- In an environment of low economic growth, high inflation and high interest rates, existing and potential homeowners are still cautious. Although many respondents still see property as a good investment over the longer term, which will increase in value, many responses indicated wanting to spend sparingly until the economy stabilises. Concerns about economic instability and affordability are driving more people to continue renting and delay realising their dream of homeownership.
- The outlook for the economy and interest rates remains uncertain in the short term. Based on the current outlook, it is expected that rates will start declining in the first quarter of 2024, providing much needed relief for consumers with home loan debt.
Buy rather than rent property
Inland and coastal
Buy property
Sentiment to buy property improved slightly by 2pp inland but declined by 9pp in the coastal region. Leading drivers for the low sentiment in both regions remain high interest rates, cost of living and the economy not performing well.
Selling property
Sentiment to sell property is down 4pp to 39% in Q2 2023 from 43% in Q1 2023 in the coastal region but improved slightly by 2pp inland to 45% in Q2 2023. A leading driver for sentiment in both regions is still that the economy is not performing well. Sentiment reflecting that you can get a good price for your property increased slightly, while sentiment that if you can no longer afford the property, then you should rather sell, increased.
Invest in property
Sentiment to invest in property increased 6pp inland and declined 1pp in the coastal region. Respondents in both regions are more confident that there will be a high demand for property in the future and respondents are slightly more positive that you will be able to make a good return. Negative factors such as the economy in general, rand weakness and prices are still too high seems to remain.
Buy rather than rent property
Sentiment to buy rather than rent property is down 6pp coastal but up 6pp in the inland region. A higher percentage of respondents overall believe it is better to own than rent in the current market, but negative drivers such as the ability to afford property right now and job security/risk of unemployment remain.
Renovate or make alteration
Sentiment in property renovations is up 3pp inland and down 3pp in the coastal regions. Overall, there is an increase in the sentiment that renovating will bring better returns when selling. Respondents with a negative sentiment towards making renovations or altering their property, discouraged by the high cost of materials declined slightly but affordability and current economic conditions, remain. Many also feel that their properties are still in a good condition.
Confidence in the property market
Overall confidence in the future of the property market however increased by 6pp inland from 75% in Q1 2023 to 81% in Q2 2023 and 5pp from 70% in Q1 2023 to 75% in Q2 2023 in the coastal regions. Respondents overall were more positive that property remains a secure asset, will increase in value and creates a long-term income. Concerns about the economy, job security and current cost of buying property remain.
Absa Homeowner Sentiment Index: Inland and coastal provinces
% of respondents nationally with positive sentiment by sub-index
Inland provinces: Free State, Gauteng, Limpopo, Mpumalanga, North West, Northern Cape Coastal provinces: Eastern Cape, KwaZulu-Natal, Western Cape
The Absa Homeowner Sentiment Index
Insights into the South African property market