Experts hope 2021 will be a period of change for the property sector after the challenges of lockdown. All signs point to a steady market recovery, with improved affordability for those who are buying, but the rental market is expected to remain flat with supply outstripping demand.
Next year is hoped to be a “year of change” for the country’s property market as it continues to recover from the lockdown. The short-term impact on the residential sector has been “very hard”, says Jawitz Properties’ Herschel Jawitz and while it will “take some time” for the industry to fully recuperate, 2021 will hold the key.
“I believe it will prove to be a year of change in how we do business and what we spend our money on, in terms of the move away from ‘bricks and mortar’ offices, and how we engage with our people – both internally and our clients. For the companies that emerge from 2020 better and stronger, it will not be business as usual,” says Jawitz.
Although interest rates are expected to remain low well into 2021, there is still much uncertainty with regard to Covid and how quickly South Africa will be able to access a vaccine, as well as the lagging impact of the lockdown on the economy. Therefore, while buyer activity and demand will remain firm into 2021, giving rise to a more balanced market between sellers and buyers, property prices are expected to “remain flat”.
“The rental market will remain subdued with supply outstripping demand by some margin.” Rental demand and prices are falling while vacancies across most price sectors are rising. “With interest rates at current levels, those tenants who can afford to buy are buying and those who can’t are extremely price-sensitive,” says Jawitz.
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Echoing this, FNB’s Siphamandla Mkhwanazi says homeownership affordability incentivised renters to buy. “In part, this is reflected in rising vacancy rates and subdued rental escalations, as landlords struggle to hold on to their good tenants… So in a way, the impact of the pandemic is more visible on the rental market then on the home buying market.”
For those who are buying, he says improved affordability and changing housing requirements are supporting demand for property in second-tier cities and in coastal towns such as George in the Western Cape and Durban in KZN.
In addition, young buyers are also now able to afford to buy property in affluent suburbs that were previously out of reach, for example, Sandton. However, labour market pressures pose a “significant downside risk in the coming quarters”.
“For instance, if job losses spread to more white-collar occupations, we should expect downward pressure on home buying activity and by extension continued pressure on house price growth in 2021.”
Money will also likely still be tight for the average South African as unemployment tops 30% and businesses rein in spending, says Rawson’s Tony Clarke. Homeowners will need to budget carefully to ensure they can continue to meet their monthly bond repayments and keep up with essential maintenance and upgrades to protect the long-term value of their properties.
Nonetheless, all signs point towards a continued steady market recovery. “The current surge in market activity is due to the combination of record-breaking low-interest rates, excellent value for money on offer, and very motivated lenders offering up to 100% bonds to qualified buyers. We don’t foresee those conditions changing for several months at least,” says Clarke.
As market momentum continues, Clarke believes that property prices will begin to climb and hopes for improvements in the economic growth rate to boost income, affordability and consumer confidence.
“All of this will contribute to the already high demand for properties, particularly within the low- to middle-price ranges, and help support stronger price growth in the months to come.”
Berry Everitt of Chas Everitt International, however, expects market momentum to slow during 2021, even though inflation is likely to remain depressed by low international oil prices and cautious consumer spending and borrowing. Thus, the Reserve Bank is “unlikely to start raising interest rates until 2022”.
“The big problem is South Africa’s very high unemployment rate and the unusually high number of middle- to upper-income consumers who are usually better insulated against economic shocks but currently struggling to make ends meet as a result of pandemic-related retrenchments and company closures.”
Banks are, of course, aware of this and so are already tightening their home loan credit criteria in response. “So even though we expect demand to remain strong, especially at the lower end of the market, we also foresee that bond approval rates will decline and that less of this demand will translate into actual sales next year.”
Everitt adds that the number of distressed sellers can be expected to rise and bring more inventory to the market.
“Landlords who have struggled with non-paying tenants in 2020 could also start to offload some of their rental properties and for those who are in a financial position to do so, this situation could present some very attractive buying opportunities.”