Forecast on property trends in 2021
MAIN IMAGE: Dr Andrew Golding, chief executive Pam Golding Property group; Siphamandla Mkhwanazi, FNB senior economist; Shaun Rademeyer, CEO Multinet; Tony Clarke, managing director Rawson Property Group
In 2020 the lockdown changed home buying trends as homeowners reassessed their requirements of a home. What is the forecast for 2021?
One thing we learned in 2020 is that you can’t predict the future with complete certainty. No one could have foreseen that a pandemic would bring the global economy to a halt on the scale we witnessed.
However, like the phoenix rising from the ashes, the residential property sector came alive in June as soon as the deeds office reopened, and real estate agents could again operate fully. A combination of pent-up demand and historic low interest rates encouraged home sales in certain areas and price brackets to such an extent that some of the top franchises recorded record high sales.
Yet how long can we expect this to continue in the reality of the country’s massive challenges in rebuilding its’ shattered economy amid fears of a second wave of the pandemic?
How much will house prices increase?
The combination of low interest rates and mortgage payment holidays meant the local property market is in a better condition to recover than it was during the global financial crisis of 2008. Mortgage repayment holidays saved jobless workers from having to sell their homes, preventing major supply glut (which is what happened in 2008) says Siphamandla Mkhwanazi, FNB senior economist. The high levels of market activity seen since June gave rise to record residential sales with even double-digit house price growth recorded for properties below R450k.
Also read: House price growth in double digits
However, the positive price growth seen should be balanced with current economic realities. “Households are under considerable financial pressure, with the full economic impact of the lockdown and subsequent targeted lockdowns of late-2020 and in 2021 yet to be felt,” notes Dr Andrew Golding, chief executive of Pam Golding Property group. He continues that the spectre of further job losses and limited wage increases are likely to present an ongoing headwind to the housing market next year – suggesting a slower recovery than is expected.
The rapid recovery of the housing market is expected to start losing steam going into next year due to household financial constraints and the weak economic growth prognosis agrees Mkhwanazi. The latest FNB House Price Index reports house price growth of just 2.6% y/y in October. “We must be cognitive of the challenges we will be facing,” adds Shaun Rademeyer, CEO of Multinet. “As corporate South Africa starts focusing their attentions on profit targets and consolidating the losses of 2020, we will see more retrenchments coupled with the banks easing of the payment holidays and debt relief programs. The impact of this will result in more consumers being forced to downscale and a higher number of properties becoming available in the market and thus moving us back to a buyers’ market as we saw in April and May 2020,” he adds.
Until the economy recovers from the impact of the pandemic, Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, predicts that house price appreciation will remain low for 2021 with a national average of roughly between 2-3% growth y/y, says.
The bells ring now for first-time buyers
Standard Bank reports that their approval rates for July increased from 54.19% to 55.89%. The improved affordability of homes, especially for first-time home buyers is directly linked to the South African Reserve Bank’s decision to dramatically drop the repo rate to it’s lowest level in almost 50 years. However, this is not expected to last indefinitely – the SARB has already indicated an interest rate hike could be on the cards by the second half of 2021 which will affect affordability for first-timers.
Mkhwanazi says they don’t expect a drastic increase, but rather a gradual rise – “in other words, interest rates are expected to remain low for longer. This serves as a supporting factor to the property market,” he ends. In light of the fact that the record low interest rate will remain steady combined with factors such as the excellent value for money on offer and favourable lending environment, they expect a continued steady market recovery says Tony Clarke, managing director Rawson Property Group.
What will buyers look for?
There is no doubt that the experience of being cooped up in an apartment with little or no access to outdoor space during lockdown has led many to reassess their requirements of a home. Additionally, for many people working from home will remain their ongoing reality. Consequently, even though they can see the market is quieting down, these factors will continue to drive market activity as people continue to up-or-downgrade as their daily needs change says Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty.
Work from home: Lightstone has already reported an increase in home sales in coastal towns and on lifestyle estates as more people continue to work from home who are looking for more spacious homes in quieter family-friendly environments. “Work from home has become the new buzzword,” agrees Steve Brookes, chief executive of Balwin Properties. “This change in work environment has dramatically evolved the way home buyers evaluate prospective properties. Where it used to be the kitchen and bathroom that influenced the final purchase decision, these days fibre connectivity, leisure amenities and a greater greener footprint are top of the list,” he says.
“Many people are now beginning to appreciate the importance of substantial living space, including dedicated home offices, ample outdoor living and entertainment areas and in-house amenities,” adds Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty. Going forward she predicts the ideal living space will be larger with plenty of room for everyone to have their own space as well as communal areas where everyone can get together. Gardens and outdoor living spaces are also moving up on the wish lists.
Buy rather than rent: This year’s interest rate cuts has made owning their own property more affordable than paying rent for many former tenants. Developers are converting empty office and retail space into residential units to supply in the demand for affordable housing. Golding also adds that home buyers across all age groups are also becoming increasingly conscious with aspects such as energy and water efficiency and sustainable use of materials at the top of the wish list. “There is a long-term plan – buyers are looking sharply at rising utility costs and erratic service delivery. The house of their future is ideally off-grid and independent,” he explains.
More foreign investors: “This year’s total of a 2.25% interest rate cut is so rare as to be nearly unprecedented in our country and offers extraordinary opportunities for investors and consumers, particularly in sectors like property,” notes Clarke. The fact that the favourable finance conditions are likely to stay for a while also leaves an opportunity for foreign investors with stronger currencies to find great value in South African property. He says this could potentially further bolster the luxury market now that borders are open for international travel, although this growth will likely remain modest compared to the more affordable segments of the market.
Tech-savvy real estate sector
In many ways, 2020 brought along a forced utilisation of virtual tools and technology across the real estate context. Clarke says this has laid the foundation for a more efficient, convenient and flexible property experience moving forward. For real estate – as for many sectors and industries locally and abroad – the impact of COVID-19 has required a shift to the use of things like online consultations, virtual reality, digitised documentation, and more efficient, professional instant communication. “The efficiency and convenience that this technology offers, means that real estate will most likely continue operating a bit differently, even past COVID-19 concerns and restrictions,” he concludes.
The signs indicate that though perhaps at a more sedated pace, the residential property sector will see continued high activity. In closing, then these remarks from Rademeyer: “We believe that 2021 will be a busy year for the real estate industry and the opportunity to proposer will continue for the agent / agencies that provide the best advice and service during these times”.