The real estate industry is a big part of micro-economic dynamics. The last few decades have seen this rich and empowering sector rise and weather different storms along the way. At the heart of this growth has been an increased demand for homeownership and housing development initiatives driven by both the public and private sector. What else is defining the market?

Banks

Banks and other financial lenders have continued to operate. This means that it has been possible to shop for houses online, although viewings have just been made possible with relaxed restrictions and the necessary precautions in place.

In terms of homes, banks have been assisting with marketing the sale of property for financially distressed customers.

The four major banks in South Africa have collectively offered payment breaks to nearly 1.3 million customers. The majority of the activity in the market appears to be focused in a specific price band, with applications for bonds in the R750,000 to R2 million price band showing the highest demand.

Single females are the highest proportion of property buyers in the country. 

Interest rates

One positive development out of the Covid-19 crisis is the interest rate cuts that kicked off the first half of 2020. In response to the coronavirus and the damage it is expected to have on the economy, the South African Reserve Bank (SARB) cut the rate by a further 1% on 14 April 2020, after already having cut it by the same amount earlier in March. It was then cut again by 0.5% in May. This means three big rate cuts within the space of three months, taking the prime rate to 7.25%. The SARB’s Monetary Policy Committee meeting took place between 21 and 23 July 2020 with the current prime rate now standing at 7%, which is the lowest level in decades. This is good news for homeowners, investors and first-time buyers, who will find themselves paying less per month on their bond repayments.

Buying and selling prospects

For first-time homebuyers, the cost of renting versus buying is now swinging very much in favour of buying, especially for properties below R1,000,000 where there is no transfer duty applicable. There are likely to be attractive deals in the market as sellers who have been holding on for some time to sell their properties are forced to reduce prices, which should bolster demand in the property industry. Market sentiment points to the rentals market being under pressure which will more than likely see landlords lowering their prices.

Affordable housing

While the luxury housing market continues to experience price deflation, the affordable housing market is doing a brisk trade. This may be a result of government support for first-time homebuyers, including a subsidy for low and medium-income earners. Furthermore, properties purchased for under R1,000,000 require no transfer duties.

Foreign home buying remains subdued

Given South Africa’s economic stagnation, perhaps it is not surprising that home-buying by foreigners has declined in recent years, according to First National Bank (FNB), even though property in South Africa is now dramatically less expensive for foreign buyers than nine years ago. FNB attributed this to weaker investor sentiment towards South Africa, the country’s multi-year economic stagnation, uncertainty about the country’s future economic policy, and negative news such as the downgrade to junk status.

Value in the super-luxury sector

The upper price bands and super-luxury sector above R8 million are, however, expected to remain muted and sellers will need to price competitively. This sector of the market, says Seeff, is a function of sentiment. Until sentiment and economic activity picks up and confidence in the future of the country and the economy improves, buyers will likely remain selective.

That said, the super-luxury sector currently offers the best opportunity for bargain hunting in 35 years. The depreciation of the rand means that high-end property is now about 20% to 30% cheaper for those paying in dollars, pounds or euros. Prices are already down by about 20% since 2018 and consumers can expect a further decline of around 20% to 30%.

Property purchasing power between men and women

Property data shows that over the last three years (2017 - 2019), single females are the highest proportion of property buyers in the country, investing in properties with a median price of R800,000 in secure estates. Statistically, the rate of sale in these developments is 40% higher than other developments with an average price point of R1 million.

Residential construction activity mixed

Residential completions rose 9.6% in 2019 to 44,055 units, following an increase of 3% in 2018, with strong growth in construction of flats and townhouses, according to Statistics South Africa.

For houses measuring less than 80 sqm, completions plummeted 15.7% y-o-y to 9,836 in 2019. For houses measuring 80 sqm and above, completions fell 6.7% to 9,998. For flats and townhouses, completions surged 42.9% to 25,479 units over the same period. However, building approvals fell 5.1% to 55,133 units. For houses measuring less than 80 sqm, approvals plunged 16.4% to 13,935 units in 2019. For houses measuring 80 sqm and above, approvals fell 12.2% to 13,220 units last year. For flats and townhouses, approvals fell 16.5% to 24,049 units last year.

Self-sustaining homes

As the eco-friendly lifestyle trend rises worldwide, South Africans are paying special attention to minimalist and resourceful living. This is the reason we are seeing more and more self-sustaining home solutions in the property market.

People are moving over to solar-powered homes, making use of gas, rainwater harvesting systems and even growing their own organic veggies in the garden. Some might say that eco-friendly and sustainable living might just be the future of real estate in South Africa.

Millennials took the lead as the largest group (38%) of home buyers last year.

Equity is unlikely to decrease through 2020

With most housing markets at low risk for a downturn, the 2020 Housing and Mortgage Market Review estimates home prices will continue to rise for the next couple of years. It’s a win for sellers! If you sell your house before 2023, you’ll likely still make a nice profit. Continue to monitor how much your home is worth to make sure your equity (what your home is worth minus how much you owe on it) is increasing.

Millennial homebuyers are the majority

That’s right, our final trend is about who is buying homes. Once again, millennials took the lead as the largest group (38%) of homebuyers last year.

Moving forward to the remainder of 2020, what’s to come all depends on how long social distancing and concerns overspreading the virus remain in effect. The best buyers’ market in 50 years is currently at the mercy of Covid-19.

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