While Covid-19 has had a devastating effect on many sectors of the economy, the residential property industry has seen something of a boom.
“Surprising”, “eye-opening”, and “unexpected” are just some of the words being used to describe this year in the property market.
The national lockdown and resultant closure of the Deeds Office saw the industry come to an almost complete standstill and many people felt it would not recover from the blow.
But six months after reopening, and with the aid of interest rate cuts, the market has staged a comeback and offers buyers some of the best buying conditions ever.
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The pandemic has had a profound impact on global economic activity, says FNB senior economist Siphamandla Mkhwanazi, with many economies experiencing sharp recessions, unemployment spikes and stagnated incomes. Yet housing markets in major economies remained “relatively unimpacted”.
“Buying activity remains robust and prices continue climbing.” He says this decoupling between the real economy and housing market activity is, in most places, facilitated by the sizeable stimulus packages (fiscal and monetary) designed to fend off wider economic calamity.
“Ultra-low interest rates have made monthly mortgage payments more affordable and houses more attractive to buy, thus stoking demand. Mortgage repayment holidays, on the other hand, saved jobless workers from having to sell their homes, preventing a major supply glut.
“Naturally, these factors are price supportive. South Africa’s experience has not been dissimilar, at least directionally.” Here, Mkhwanazi says industry-wide data shows “burgeoning home-buying activity, propped up by low-interest rates, attractive market pricing, lower transfer duties and the changing housing needs due to the pandemic”.
Residential sales have “certainly surprised”, agrees Herschel Jawitz, chief executive of Jawitz Properties. Although the rapid drop in interest rates during levels 5 and 4 of lockdown were expected to have some impact on demand, the sharp increase in activity and demand from buyers was surprisingly positive.
“What was expected was muted demand from buyers coming out of a very difficult lockdown from a health, finance and confidence point of view. Instead, the drop in rates of nearly 3% created real buying opportunities especially in the lower to mid-sectors of the market and, specifically, for first-time buyers. Added to this has been the strong bank lending environment, despite the economy.”
While the increase in activity has been good, however, Jawitz says it will still be some time before it translates into meaningful price growth which, for the most part, is still not keeping up with inflation.
“I think this year has been an eye-opener for all of us in property,” says Tony Clarke, managing director of the Rawson Property Group. “We were very hard hit with lockdown restrictions – particularly as a largely commission-based industry. Thankfully, being able to leverage technology to engage with buyers, sellers, landlords and tenants safely and effectively, from a distance, has been instrumental to the success of real estate transactions across the board over the past few months.”
While the country’s national debt situation “laid out in black and white” was definitely difficult to hear this year, he says the emphasis was on economic revival and, in order to stimulate the economy, the government needs to stimulate spending. One of the main ways to achieve this is to cut interest rates.
“We saw interest rates drop by an entire 2.75% this year, which also gave homeowners much-needed relief on monthly bond repayments, as well as incentivised new buyers to enter the property market. This resulting boost to activity will help stabilise property prices and contribute to a return to healthy price growth in time,” Clarke says.
The Covid-19 pandemic caused extreme volatility in world stock markets this year, especially in the travel, tourism, finance and commercial property sectors, but this has been positive for the residential property market, says Berry Everitt, chief executive of the Chas Everitt International property group.
“Many affluent investors made an early move from equities to luxury bricks and-mortar which, along with gold and other hard assets, is regarded as a safe haven in turbulent times and offers many opportunities for tax relief.
“At the same time, and especially in South Africa, consumers have reacted positively to the steep rate cuts introduced to try to stimulate the economy – or at least keep the wheels turning – in the face of the pandemic.”
The banks have also been “very keen” to grant new home loans and literally thousands of long-time tenants have taken the opportunity to become first-time homeowners. This means many real estate companies have, since June, had some of their best sales months in many years.