How real estate changed in 2020
MAIN IMAGE: Carl Coetzee, CEO Betterbond; Andrew Golding, chief executive Pam Golding Property group; Tony Clarke, managing director Rawson; Samuel Seeff, chairman Seeff Property Group.
A record-low interest rate. Covid protocols. Record property sales but a rental market under pressure. Property experts look at how some of this year’s key events impacted the real estate sector and what to expect for the rest of 2020.
On Monday the lockdown restrictions eased further as the country moved from level 2 to level 1. Looking back, especially the commission-based real estate sector was hit hard in the first few months of lockdown, but has generally bounced back with vigour in the past few months. The South African Reserve Bank’s decision last week to maintain the interest rate at 7%, the lowest rate for close to 50 years, also bodes well for the rest of the year or is it too early to say?
Best conditions to buy in years
There have been five repo rate cuts since January this year – a colossal 300 basis points. According to Carl Coetzee, CEO of Betterbond, this has been a gamechanger for the property market with many agencies that have reported record sales since June. “Notwithstanding the economic challenges caused by the global pandemic, we can’t overlook the significant impact the South African Reserve Bank’s decision to keep the interest rate low has had on the property market,” he says.
Another critical factor that makes the low interest rate a gamechanger, says Dr Andrew Golding, chief executive of the Pam Golding Property group, is that it occurs at a time when properties have seen a significant price correction (to adjust for the prevailing sluggish economic conditions). This means property prices are more affordable at these lower interest rates. The banks are also keen to approve home loans, even 100% bonds. Ooba reports that in July the approval rate for pre-qualified buyers was 91% and 79% for non-qualified buyers with an approval rate of 81.7% for 100% bonds. According to Golding, this combined with the zero-transfer rate applicable to homes priced up to R1 million has made home ownership the most accessible it has been in years, prompting many to buy instead of rent. More than half of the bond applications are from first-time buyers – Coetzee says 70% of their bond applications received in June were from this group.
While good for the property market, the effect on the rental market has been the opposite says Marcél du Toit, CEO of Leadhome. “Tenants with good credit scores are switching to home ownership leaving less reliable tenants and less overall demand which is negatively affecting landlord yields,” he explains.
Being forced to remain at home led to many people to re-evaluate what they need from their home. A recent survey done by RE/MAX SA found that the most common feedback was that people are searching for a higher quality of life and they are looking for homes with an at-home study space as well as an additional room or flatlet to allow for multi-generational living. Maurice Lodewick, broker/owner of RE/MAX Lifestyle Estates in Nelspruit, explains that since the lockdown occurred, buyers in his area are requesting more space and a home that offers a higher quality of life. “They want larger stands and some are still wanting small stands, but with views onto greenbelts or vast open space. There have also been more requests for studies, especially for studies that can accommodate more than one person. Beyond this, buyers are looking for outbuildings that can be converted to a school room or a flatlet to accommodate Granny.” According to Samuel Seeff, chairman of the Seeff Property Group, there has been a mini coastal boom in areas targeted by semigration buyers, from Cape Town to Hermanus and Plettenberg Bay and the KZN North Coast. “Those who are not moving permanently are setting up second homes where they can spend extended periods,” he says.
Covid changed how we do business
Going digital – One of the advantages of the lockdown has been to make it easier for estate agents to work remotely. During the lockdown most estate agencies quickly adapted their existing technology and digital offerings to enable their agents to be able to work from home. This has laid the groundwork for a more efficient, convenient and flexible property experience moving forward reflects Tony Clarke, managing director of the Rawson Property Group. “Forced change is never easy, but it can be for the best,” he says. “We may have embraced tools like virtual show houses, 3D tours and digital paperwork by necessity, but these services have also made us a more attractive, adaptable, future-proof brand.”
Covid-protocols – Another necessity has been to adopt Covid-protocols to aid in preventing the spread of the virus. Industry watchdog Rebosa has urged estate agencies to continue being vigilant even though the lockdown regulations are slowly being phased out. According to Bruce Swain, CEO Leapfrog, the strict protocols and guidelines they put in place under Level 3 will remain firmly in place. This includes continuing to minimise in-person contact, maintaining social distance and operating online as far as possible.
Home viewings – Rebosa advised that viewings of properties be done online as far as possible with physical viewings only being done for serious buyers. Golding agrees saying they will continue with virtual tours and iShow days, however, if a buyer wants to physically view a property, then they will make the necessary arrangements and follow strict protocol guidelines.
Use of office – The pandemic certainly gave momentum to the remote working trend but this has not meant the end of the office. Swain says although they prefer their agents to be out and about, their offices serve as a central meeting point for meetings, brainstorms and the like. So, at this stage there are no plans to close any of their offices. Others decided to opt for a more centralised approach such as Pam Golding Properties that decided to consolidate some of their larger metro offices into more centralised hubs which resulted in the closure of some of their satellite offices. Du Toit says Leadhome has only one office for their physical headquarters and they are going to keep it but may convert it into a space focused on training and culture that is fun to hang out in as opposed to a serious work space.
Outlook for the rest of 2020
Greater competition strengthens house prices – Following the increased activity on the property market over the past few months, there are indications that house prices are strengthening again slowly. FNB has reported price growth of 1.4% year on year. According to Coetzee they’ve seen an increase in average house prices listed in bond applications across all price bands but this is especially true for house prices in the lower end of the market. This is not surprising as most homeloan applications have been from first-time buyers. Richard Day, CEO of fixed-fee agency Eazi Real Estate, agree that buyers in the price band below R2.5 million are in some instances pushing up asking prices. “Not only are asking prices in this price band readily being achieved, they are also sometimes being exceeded, with these high demand properties selling in one or two days,” says Day.
However, in the luxury and investment sections buyers have been more cautious. According to Seeff they are anxious to first see a return of confidence, decisive action on corruption including arrests and economic policy aimed at growth rather than debt accumulation.
Low interest rates till end of 2020 – The South African Reserve Bank’s forecast is that the low interest rates are likely to remain that way for the rest of the year. Some expect that there might be small increases in the second half of next year. While this is positive news for the property market, Golding warns that the financial strain on household finances due to job losses and loss of income could offset the benefit of the current low interest rate environment to some extent.
In conclusion, Adrian Goslett, regional manager and CEO of RE/MAX of Southern Africa, highlights that these are just some of the trends that have emerged over the last few months outside of hard lockdown restrictions. “These are such unique times which makes it difficult to predict what lies ahead. New trends are likely to continue to emerge as lockdown restrictions ease and financial relief funds run dry. That being said, I remain cautiously optimistic and predict that, at worst, the rest of the year will reflect similar volumes of activity as the previous year,” Goslett concludes.