What will happen to the Property market in 2021/2022?

The First question people will ask when I run into them is “How is the market?”

Everybody I know:

 “Covid probably affected you guys a lot.
Is there a lot of bargains, because of payment defaults?”

Property Agent in Pinehurst

My answer:

“No, not at all (well, not yet anyway)”

More than 14 months into Covid we are starting to see light at the end of the tunnel.
In most industries Covid has wreaked havoc.
Interestingly, the property industry has been quite busy though and sellers are getting their prices
(if it’s market related of course…).

So what are the factors that are influencing this revival in the residential property market?
Let’s unpack it.

 

1. 7% interest Rate

Lower interest rates probably had the biggest effect on the post-Covid property boom we’ve been experiencing in the past nine months.

During lockdown level 5 the Monetary Policy Committee (MPC) decided to drop the Repo Rate down to 3,5% and the prime lending rate to 7%. This meant that consumers had more money in their cash flow overnight, which in turn stimulated the economy.

The lower interest rates suddenly meant that people could get more property for their money which allowed a lot more people entering the property market (first-time home-owners), or upgrading as this window period offered the average consumer homes that were 30% more affordable. 

According to Carl Coetzee, CEO of Betterbond:

“The difference from 10% to 7% on a R1 million home meant a monthly repayment saving of around R1 900 and a staggering R455 000 over the 20-year bond term”

A lot of South Africans also changed their spending habits to adjust to the uncertainty and not knowing what the future hold in the time of a pandemic – which in turn meant a little more money to be spent on reducing existing debt.

So the follow up question then is "where will interest rates go from here?

Initial predictions were that the rates might be adjusted upwards in mid-2021 but for now rates are staying on these levels. Small incremental hikes might start at the end of 2021.

The Reserve Bank recently said that rates may start to inch higher during the second half of 2021, but this will depend on the strength of the economy and of course inflation.

 

 

Dr Johan Coetzee (Senior Lecturer at the UFS):

 

 

“Not until the economy opens up to its full capacity and the global economic environment does the same, can we expect the SARB to consider interest rate changes. The success of the vaccine roll-out is central to this. In effect, therefore, the conditions driving an interest rate increase are primarily driven by exogenous factors largely out of our immediate control,” according to Dr Johan Coetzee, senior lecturer/researcher the University of the Free State.

 

 

So in a sense the more successful the vaccine roll-out, the quicker the economy will recover, which will ultimately mean a slow return of interest rates to 9% or 10% in the future.

Although this is a great opportunity for buyers, they should not over-extend themselves as interest will eventually go up again.

2. Bond Approval rates

In 2020 banks and some lending institutions started offering up to 100% bonds to qualifying buyers.

Not only did this help the economy but banks needed the new business that were non-existent at the time during hard lockdown.

The past six months have seen banks starting to pump the breaks and being more risk averse.

The lockdowns put huge financial burdens on companies and consumers alike and although the middle-class could sustain the pressure for 2020 we are seeing more liquidations and unemployment in 2021.

That meant that banks are beginning to lend more cautiously in the face of growing concerns regarding employment stability.

3. First-time buyers

The historic 50 year low-interest probably had the largest impact on first-time buyers. A big segment of these buyers were renting and weren’t able to afford the lifestyle they wanted by buying a property.

However, with the low interest rate a lot of these consumers could suddenly afford their own home – basically paying the same amount for their bond monthly as they would rent.
This meant a lot of first-time buyers moving from the rental market into their own homes.

Ooba

According to OOBA first-time buyers made up more than 50% of all residential property purchases in 2020.

The data is showing that most of these buyers opted for affordability. Mainly in metropolitan areas, specifically in properties that provide secure and low-maintenance living in the R800 000 to R1,5 million range.

4. Rentals and Investments

Because of the influx of first-time buyers into the property market this automatically meant that pressure were put on the real estate rental properties. 

An unusually high vacancy rate of 13% were recorded for unoccupied properties.
Because of the lack of demand rental rates were rarely increased. 

 

A lot of tenants were hit by Covid’s fall-out. Extensive non-payments was also seen on many properties.

Many property owners passed the saving on interest on to their tenants.
Up to a decrease of 25% would have meant that the property owner were in the same financial position cash-flow wise.

The Western Cape average rental in 2020 decreased by 1,6% compared to 2019.

5. Second Properties

Even with lower occupancy and lower rental demand, 46% more Second Property sales were recorded in 2020 compared to 2019.

The main driver of this has been the lower interest rates and the fact that home-owners see second properties as a long-term investment.

Initially the short-term rentals (i.e. AirBnB) were under extreme pressure.
Mainly because of the lack of overseas tourists and uncertainty during the heavy lockdown.

This sector is slowly bouncing back with South Africans deciding to spend their travel budget on local travel.

 

This is a great opportunity to buy a property for the long-term, but should only be done if you can manage the risk that is currently presented by the market. 

 

The risk to travel overseas are seen as too high with the changing lockdown and quarantine measures. The chances of losing deposits on cancellations are much less.

This is a great opportunity to buy a property for the long-term, but should only be done if you can manage the risk that is currently presented by the market. 

In other words, be sure that you have some cash tucked away to ride out the current wave.

6. Remote working

Probably the most interesting trend that emerged during the past 12 months is the “work from home” shift that became the new norm. This changed companies’ whole attitude on where employees must be to remain productive and safe.

 

Of course this meant that homes had to be reshuffled to create a home office that can be used on a longer term.

Since this means demand for more space, there has been a definite shift for consumers to move to larger homes outside the metropolitan areas. Homes which had a designated “home office” were certainly being looked at differently than 12 months ago.
If that is not possible, bigger living areas are also in demand.

We even see this playing out on home-owners’ renovation decisions with more and more people even converting their garages into home offices.

Another interesting thing that we are seeing is that the demand for freehold homes has increased faster than sectional title homes. 

 

7. Semigration

Because of technology and a culture change, a new working trend started to emerge, namely semigration.
This is where people are seen moving away from their work environments, normally to a smaller, quieter area.

This can be:

a) From metropolitans hubs to residential neighbourhoods
b) From countries with higher living costs to countries with lower living costs
c) City rats becoming country mice

International vs South Africa

This trend does not only pertain to South Africa, but we note several countries around the world realising the value in marketing themselves as such. Combining leisure, travel and technology they are removing the barriers and even allowing remote workers to become temporary residents.

Redfin in the USA reported that views of small town properties has more than doubled from 2019 levels.

South Africans have a love affair with coastal towns and Karoo dorpies, and a high number of migration occurred to these locations. The Western Cape, Garden Route, Gqeberha (formerly Port Elizabeth) and KZN are places seeing a lot of interest (due to safer spaces and a more laid-back lifestyle).

This trend is popular with consumers who doesn’t have children in school so the change is not as disruptive.
A surge in home-schooling is also driving the move to these areas.

 

Cape Town

Closer to home we’ve seen a big move from Gauteng and other provinces relocating to Cape Town.

Cape Town was named as one of the “Best Cities for Remote-working” on travel website Big 7 Travel’s 50 Best Places for Remote-working in 2021.

The City of Cape Town launched its Digital Nomad Programme which sets out to promote this new normal. With top class service delivery and an outdoor lifestyle, remote-working is just so much more appealing here.

Smaller towns
(especially coastal towns)

One of the major surprises has been the move to smaller towns and specifically in the coastal regions. Homes that were previously used for four weeks a year as holiday homes became people’s primary homes.
This popularity caused a decline in inventory which is obviously great for sellers.

 

Maybe this was the injection we needed for a revival of our lovely dorpies in the platteland.

Predicting prices in 2021

Property prices have increased in 2020 and 2021, which was a natural response to an increase in demand and a decrease in supply.
With the vaccine levels being slower as anticipated the economy is unlikely to return to 2019 levels until 2023 at the earliest.

We don’t foresee a further reduction in the interest rate.

Since this means that the demand for housing stays the same and supply possibly increasing because of financial pressures, prices will either stay the same or pull back a bit.

On the supply-side, more commercial properties may be converted into residential properties which could add downward pressure on pricing. We might also see more landlords off-loading some of their low-yielding rental properties to remain out of the red.

Property Upgrades, Additions, Alterations And Renovations Will Still See Growth In 2021 And This Can Be A Great Way To Add Value To Your Property. Especially For Larger Living Spaces, Outdoor Spaces And Home Office Facilities.​

Property Agent in Pinehurst

Conclusion

Covid-19 presented many people an excellent opportunity to upgrade, downscale, move or diversify. We are seeing a slow-down in the record numbers achieved in 2020/21. 

 

Vaccine roll-outs will have a huge impact on the recovery of our economy and only time will tell what the impact of this will be on interest rates and the property sector.

 

Rising costs as well as little to no salary increases mean the consumer is in for a rough ride in 2021 and 2022. We foresee more sellers putting their properties on the market in the second half of 2021 to alleviate debt.  

 

Property is a long-term game and if you are not over-leveraged on debt, now may be the time to make clever decisions in line with your financial goals. Those who can afford to invest in real estate rarely look back on the investment with regret.

If you have any questions, or want to find out your the price of your property, please get in touch!