Market Expectations for 2021
Category Buy and Rent
This has been a positive for the residential property market, says Berry Everitt, chief executive of the Chas Everitt International property group, with many affluent investors making an early move from equities to luxury bricks-and-mortar.
"This investment category, 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 interest 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 thousands of long-time tenants became first-time homeowners last year, with the result that many real estate companies have since June 2020 had some of their best sales months in many years."
However, Everitt 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. This means the SA Reserve Bank is unlikely to start raising interest rates until 2022.
"The big problem is SA's very high unemployment rate and the unusually high number of middle- to upper-income consumers who are usually better insulated against economic shocks. At present, these consumers are struggling to make ends meet as a result of pandemic-related retrenchments and company closures. The banks are aware of this and have already started tightening up on 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 this year.
Meanwhile, he expects the number of distressed sellers to rise, bringing 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. "On the whole though, we are expecting supply and demand to remain very much in balance in 2021 - even though they may show quite sharp local fluctuations at times - which means that there is unlikely to be any significant increase in home prices."
Tony Clarke, managing director for the Rawson Property Group, says that despite the slow improvement in the SA economy the property market is filled with opportunities for buyers in every price range. "All signs point to 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. In fact, interest rates will likely start to rise very slowly mid-2021 - nothing dramatic enough to offset the currently favourable buying conditions.
"As market momentum continues, property prices will begin to climb - a natural reaction to the increasing demand and decreasing oversupply. We're also hoping to see improvements in the economic growth rate, which will boost income, affordability and consumer confidence. All of this will contribute to the already strong demand for properties, particularly in the low to middle price ranges, and help support stronger price growth in the months to come.
Dr Andrew Golding, chief executive of the Pam Golding Property group, says the residential property market saw signs of an earlier than expected rebound in 2020, with momentum continuing beyond the pent-up demand created by the lockdown, and underpinned by the 50-year low interest rates.
"This is particularly evident in the price band up to R3 million, with additional encouraging signs of increasing activity at the top end of the market. A ripple effect is filtering through the market, placing upward pressure on demand through the various price bands. One of the benefits of the prevailing low-interest rates is the large number of first-time buyers. This is positive for South Africa because homeownership and a growing middle class are key factors for economic growth and stability.
He sees three significant shifts in the market set to change the 2021 property landscape:
- Work from home: The lockdown was a social disrupter that gave rise to a new approach to how people work and are most productive. While manufacturing and hospitality industries have no choice but to centralise, others now have promising options. Underutilised spare rooms are being redesigned as working hubs. For young professionals and first-time buyers, sectional title units with extra bedrooms are likely to appeal. For families, freehold homes with good Wi-Fi connectivity in peripheral areas, retirement villages or country estates, solve the dilemma of choosing income generation over quality of life.
- The conversion model: Buying a property that required a deposit, mortgage approval, and dual household income to service repayments, previously meant that owning a home was out of reach for many young South Africans. The lowest interest rates in nearly 50 years has made buying rather than renting a realistic prospect. Precincts that were deserted after office hours now show signs of life as young people transform office space into smart, urban hubs.
- Sustainability increasingly mainstream: More environmentally conscious buyers across all age groups are looking beyond the aesthetic of a potential new property and are asking tough questions about its green credentials. Energy and water efficiency and sustainable use of materials top the wish list but there's a long-term strategy in place. Buyers are looking sharply at rising utility costs and erratic service delivery. The house of their future is ideally off-grid and independent.
Under R2 million market
Gerhard Kotzé, managing director of the RealNet estate agency group, says the demand for homes priced at less than R2m is expected to remain very lively as long as interest rates remain at current levels. This demand will be supported by large numbers of first-time buyers as well as repeat buyers downscaling from more expensive properties.
"However, we may see the actual number of transactions in this bracket start to slow this year as the banks begin to lend more cautiously. In fact, bond approval numbers have dropped from the highs of July and August 2020, and fewer grants for 100% home loans are being made in the light of growing concerns about employment stability. The possibility of large-scale retrenchments in big private sector companies and especially the public sector is especially worrying.
"Nevertheless, we expect price growth and possibly even real (after inflation) price growth in the under-R2m market due to steadily tightening inventory constraints, especially at the lower end of this sector."
Rentals
Looking at the rental market, Kotzé says rentals are likely to show only minimal growth this year - if any - due to the combination of high vacancy rates and economic pressures on tenants. He expects most landlords and rental agents to apply increasingly strict credit and rental record checks, and says deposit requirements are also likely to rise. "Thousands of quality tenants became homeowners in 2020 due to the lower interest rates. On top of that landlords have had to contend with extensive non-payment issues due to the economic effects of the Covid19 pandemic and lockdown, so they are already very cautious when it come to new tenants. Unfortunately, a large number of those likely to be looking for rental properties this year will already have some financial problems, so landlords will need to be even more careful." Alternatively, says Kotzé, quite a number of rental property owners will probably decide to sell off their portfolios this year, and astute buyers with the means to buy quickly should look out for 'bargain' flats and townhouses that will come onto the market as a result.
Low interest rates mean more sales
"Interest rates are likely to remain low as we head into 2021," says regional director and chief executive of RE/MAX of Southern Africa, Adrian Goslett.
"It's possible the SA Reserve Bank will increase the rate slightly by around 0.5 points for 2021, but this should not have a great impact on the property market. The low interest rates together with other factors have created a housing market boom, particularly in the first-time buyers' market.
"Our reported sales figures for October 2020 were up by 3% from 2019. This followed three months of hard lockdown from April to June where sales dropped by 62% year on year. We predict the Southern African property market will continue to see these high sales volumes in 2021 for as long as interest rates remain favourable and homeowners continue to adjust their lifestyles to suit the post-lockdown world."
He says the negative state of the economy is likely to lead to an increase in the number of home sales which, in turn, will keep price growth pegged back.
According to the RE/MAX National Housing Report for the third quarter of 2020, the median listing price of sectional titles reflected a 5% drop year on year, and freehold homes reflected no growth but remained steady year on year.
The latest FNB House Price Index reports annual house price growth of just 2.6% year on year in October. Until the economy recovers from the current pandemic, Goslett predicts that house price appreciation will remain low for 2021, reflecting a national average growth of between 2% and 3%.
Sellers
Rawsons' Tony Clarke cautions sellers to remain pragmatic when it comes to pricing.
"Price growth is on the horizon but it's important not to pre-empt pricing conditions. Buyers and tenants are well-informed and spoilt for choice. They won't be interested in properties that aren't appropriately competitive."
Everitt says there is no sense in homeowners taking their homes off the market now in the hope of selling at a higher price in the near future. "The macro-economic factors are more than likely to suppress the current wave of sales, and cause sales and prices to stagnate, so owners who want or need to sell now for any reason should do so as soon as possible," says Everitt.
Distressed sales
Kotzé says the second tier of the market (between R2,5m and R4m) is set to encounter fairly strong headwinds in 2021, and owners in this sector who need to sell their homes should list them as soon as possible.
"We foresee that middle-income consumers are in for a tough year, with debt relief measures having come to an end, minimal salary increases expected and the cost of everything from schooling and medical aid to electricity, water and transport set to rise as usual. In addition, some R5 billion worth of income tax increases are expected to be announced in the 2021 Budget in February.
"Consequently, the number of homeowners who are selling to alleviate financial pressure will almost certainly rise, and the number of distressed sales can also be expected to increase. This will add to the available inventory in this category and place downward pressure on prices.
In fact, homes that are being sold through the bank's distressed seller programmes are generally only reaching 85% to 90% of value now, compared to an average of about 95% at the start of 2020. And we expect that they could go as low as 80% in 2021.
This will of course present some great opportunities for buyers but, says Kotzé, will also leave many distressed sellers in the position of still having to pay off large portions of their outstanding home loans, even after their properties have been sold.
"Although their credit records will be preserved, this will hamper their financial ability to secure other properties or even rental homes, so once again we would urge anyone who needs to sell now to do so without delay."
Author: Private Property
