If there’s anything worth noting from 2020, it is that you can’t predict the future with absolute certainty. No one could have foreseen that a pandemic would bring the global economy to a standstill on the scale we witnessed.
However, the residential property sector was revived in June as soon as the deeds office reopened, and real estate agents could operate again. Factors like pent-up demand and notably low interest rates encouraged home sales in certain areas and price brackets to such an extent that some of the top franchises recorded record high sales.
Yet how long can we expect this to continue in the reality of the country’s massive challenges in rebuilding its’ compromised economy?
Will house prices rise?
The combination of low interest rates and mortgage payment holidays meant the local property market is in a better condition to recover than it was during the global financial crisis of 2008. Mortgage repayment holidays prevented jobless workers from having to sell their homes, preventing major supply surplus (which is what happened in 2008) says Siphamandla Mkhwanazi, FNB senior economist. The high levels of market activity seen since June last year resulted in record residential sales with even double-digit house price growth recorded for properties below R450k.
However, the positive price growth seen should be balanced with current economic realities. “Households are under considerable financial pressure, with the full economic impact of the lockdown and subsequent targeted lockdowns of late-2020 and in 2021 yet to be felt,” notes Dr Andrew Golding, chief executive of Pam Golding Property group. He continues that the spectre of further job losses and limited wage increases are likely to present an ongoing headwind to the housing market this year – suggesting a slower recovery than is expected.
The rapid recovery of the housing market is expected to start losing steam going into this year due to household financial constraints and the weak economic growth prognosis agrees Mkhwanazi.
Until the economy recovers from the impact of the pandemic, Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, predicts that house price appreciation will remain low for 2021 with a national average of roughly between 2-3% growth y/y.
The first-time buyers market
Standard Bank reports that their approval rates for July 2020 increased from 54.19% to 55.89%. The improved affordability of homes, especially for first-time home buyers is directly linked to the South African Reserve Bank’s decision to dramatically drop the repo rate to it’s lowest level in almost 50 years. However, this is not expected to last indefinitely – the SARB has already indicated an interest rate hike could be on the cards by the second half of 2021 which will affect affordability for first-timers.
Mkhwanazi says they don’t expect an extreme increase, but rather a gradual rise – “in other words, interest rates are expected to remain low for longer. This serves as a supporting factor to the property market,” he ends. With regards to the record low interest rate, it’s expected to remain steady combined with factors such as the good value for money on offer and favourable lending environment, they expect a continual steady market recovery says Tony Clarke, managing director Rawson Property Group.
Buyers’ wish list
There is no doubt that those staying in an apartment with little or no access to outdoor space during lockdown has led them to reassess their living requirements. Furthermore, working from home will remain their ongoing reality. Factors like these will continue to drive market activity as people continue to up-or-downscale as their daily needs change.
Work from home: According to Lightstone, there’s been an increase in home sales in coastal towns and on lifestyle estates as more people continue to work from home who are looking for more spacious homes in quieter family-friendly environments. “Work from home has become the new buzzword,” agrees Steve Brookes, chief executive of Balwin Properties. “This change in work environment has dramatically evolved the way home buyers evaluate prospective properties. Where it used to be the kitchen and bathroom that influenced the final purchase decision, these days fibre connectivity, leisure amenities and a greater greener footprint are top of the list,” he says.
“Many people are now beginning to appreciate the importance of substantial living space, including dedicated home offices, ample outdoor living and entertainment areas and in-house amenities,” adds Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty. Going forward she anticipates the ideal living space will be larger with plenty of room for everyone to have their own space as well as communal areas where everyone can get together. Gardens and outdoor living spaces are also more in demand.
Buy rather than rent: With the lowered interest rates, owning your own property is more affordable than paying rent. Developers are converting empty office and retail space into residential units to supply in the demand for affordable housing. Golding also adds that home buyers across all age groups are also becoming more of factors such as energy and water efficiency and sustainable use of materials at the top of the wish list. “There is a long-term plan – buyers are looking sharply at rising utility costs and erratic service delivery. The house of their future is ideally off-grid and independent,” he explains.
More foreign investors: “Last year’s total of a 2.25% interest rate cut is so rare as to be nearly unprecedented in our country and offers extraordinary opportunities for investors and consumers, particularly in sectors like property,” notes Clarke. The fact that the favourable finance conditions are likely to remain also leaves an opportunity for foreign investors with stronger currencies to find great value in South African property. He says this could potentially boost the luxury market, although this growth will likely remain modest compared to the more affordable segments of the market.
Real estate lives online
In many ways, 2020 propelled the use of virtual tools and technology across the real estate space. Clarke says this has laid the foundation for a more efficient, convenient and flexible property experience going forward. For real estate – as for many sectors and industries locally and abroad – the impact of COVID-19 has required a shift to the use of things like online consultations, virtual reality, digitised documentation, and more efficient, professional instant communication.
In light of these signs, the residential property sector will see continued high activity this year. There is also opportunity to thrive for agents and agencies who provide the best advice and customer service.