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The shape of recovery for property market

MAIN IMAGE: Siphamandla Mkwanazi, senior economist FNB; Dr Andrew Golding, chief executive Pam Golding Property group; Carl Coetzee, CEO BetterBond; Adrian Goslett, regional director and CEO RE/MAX of Southern Africa.

In the three months since lockdown restrictions eased the residential property market has continued to enjoy an unexpected rebound in sales but with the country’s economy in tatters how long can we expect this to last?

Many estate agencies and lifestyle estates have seen a high level of sales activity since the easing of lockdown restrictions in June. This has been ascribed to a ‘perfect’ combination of pent up demand and buyers eager to take advantage of the lowest interest rates in decades. Incredibly, it is now three months later and despite the dire state of the economy, sales activity have not slacked down but for how long will it continue? What can the real estate sector expect for the rest of 2020?

Buying activity resurging

Due to the closure of the Deeds Office and other restrictive measures, property sales couldn’t take place during lockdown levels 4 and 5, but since June home sales have rebounded far above what was expected. According to FNB’s senior economist, Siphamandla Mkwanazi, annual house price growth rebounded to 1.4% in July, down from an upwardly revised 0.7% in June and 0.6% in May. “The bounce back in prices reflects the unexpectedly rapid recovery in market activity since the easing of lockdown restrictions,” he says.

Also read: Real estate rebounds after lockdown

Mortgage brokers have been flooded with bond applications. BetterBond CEO Carl Coetzee says since June their bond applications have increased overall by 52% year-on-year and it’s not yet showing signs of slowing down. “July and August have recorded the highest numbers of applications ever in BetterBond’s 20-year history,” says Coetzee.

Due to the financial pressure thousands experienced as a consequence of the lockdown restrictions, such a quick rebound was unexpected. “Our initial expectations were for the pandemic to have a more chilling and lingering impact on activity, with pent-up demand filtering through only later this year. In contrast, the volume of new mortgage applications has rebounded beyond the pre-lockdown levels, and across the price spectrum. This is also supported by the volume of buyer leads, derived from web traffic to property portals, which has risen above expectations,” explains Mkwanazi.

Considering the devastating effect that the lockdown had on thousands of businesses, what are the factors that led to this sudden rebound?

First-time home buyers step up

Following a series of rate cuts since the start of the year, with the last one announced in May, interest rates are currently at the lowest level it’s been in almost 50 years. This, as well as the zero-transfer duty payable on properties selling below R1 million, has prompted many former tenants to enter the property market. Coetzee says they have seen a dramatic increase in applications from first-time home buyers, up from 60% in 2019 to 70% in August this year. “Many millennials who used to remain mobile, maintaining flexibility to travel globally, seem to be looking at getting apartments and ‘settling down’ for now,” observes Dr Andrew Golding, chief executive of the Pam Golding Property group.

Adrian Goslett, regional manager and CEO of RE/MAX of Southern Africa, says that in many cases the low interest rates has made it more affordable to purchase property than to pay rental. He predicts that as long as interest rates remain low, the first-time buyers’ market will remain strong, and this, adds Coetzee bodes well for the future recovery of the property market.

Adjusting to a changed lifestyle

The months of confinement to their homes during lockdown, has led many people to reassess where they want to live. Murray Collins, director of Collins Residential lifestyle estate developers, believes the remarkable uptake they have seen across all of their developments and in the residential market as a whole, is because ‘the home’ came into renewed focus during the pandemic. “People want to live differently, and they don’t want to wait to experience a better life. This has resulted in a realisation that if there is an opportunity to experience life, in a better way, then there is no better time than the present to invest in their quality of life,” he says.

Even before Covid-19 there was a worldwide counter-urbanisation or de-urbanisation movement, which sees people actively moving away from cities to smaller towns in search of a less stressful, more peaceful, country lifestyle as long as there is internet connectivity and a good cell phone signal. The pandemic made more people and companies realise that it is possible to run a business remotely.

Consequently, they are not surprised to see an increase in enquiries for country homes says Berry Everitt, CEO of Chas Everitt International Property Group. “In keeping with international trends, however, most do not want to relocate to another province or region but just to a small town or estate that offers the possibility of a quieter life and is still within a couple of hours’ drive of their origin city – particularly if their friends or family members still live there.”

Everitt says the areas that could be prime targets for this process of “de-urbanisation” in South Africa are the Cape West Coast, the Winelands, the Garden Route, the Little Karoo, KZN North Coast, Hartebeespoort, the Vaal, Lanseria, the Waterberg in Limpopo and towns in Mpumalanga close to Mbombela and the Kruger National Park.

Golding adds that some families are also choosing to live together to save costs and unfortunately, there is also talk that the number of separations/divorces has increased after lockdown, which would create some additional activity in the residential property market. Finally, there are still those who are selling and relocating for the usual reasons, namely lifestyle changes, downscaling as adult children have left home, retiring and so on.

Is it a “V” or a “W” or a ‘Nike swoosh’?

How long the rebound will last is the question to which no-one knows the answer for sure. Many possible scenarios are possible for the South African residential property market. “Given the extent of the unchartered waters that are being navigated at present, the only certainty appears to be uncertainty,” observes Golding.

Goslett says while a V-shape recovery is hoped for – in other words a continued increase in home sales – he doesn’t expect their record sales during the winter months to continue unless the economic outlook improves. “The future performance of the rental and housing markets all depend on how quickly our economy is able to recover from the impact of the national lockdown,” he says.

Without economic recovery, a true V-shaped recovery in the long term for the property market appears doubtful and a W-shape (double dip) recovery will be more likely says Mkwanazi. He expects the historically low interest rates and lower transfer duties to continue to support activity in the short term but predicts that weakening labour market conditions will eventually lead to another drop in activity.

Golding disagrees about a double-dip recovery as he feels the low interest rates will go a long way towards encouraging continued market activity and, secondly, it seems possible that South Africa will avoid a second wave of Covid-19 infections (and consequently a second lockdown).

He lists as other possible recovery ‘shapes’ the ‘Nike swoosh’ recovery – a sharp downturn followed by a slow, gradual recovery – or, the so-called ‘square root’ recovery – a sharp downturn, followed by a sharp upturn and then a sustained period of stability. “It is clearly too early to pronounce on this but perhaps we could hope for a recovery somewhere between a swoosh and a square root. The fact that interest rates are close to historic lows and banks retain their appetite for lending undoubtedly provides some support for the housing market recovery,” he ends.

No matter the circumstances though, property will always remain a good investment option as people will always need a roof over their heads, concludes Goslett.

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