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SA property trends to look out for

MAIN IMAGE: Paul Stevens, CEO of Just Property; John Loos, property sector strategist at FNB Commercial; Michelle Dickens of TPN; Erica Venter of BetterBond

Danie Keet

Property, like all investments, is cyclical. The 70s, 80s and 90s were volatile years and the early 2000s saw a Rainbow Nation run of seven years where house price growth was over 15%. In 2004, it was more than double that, says CEO of Just Property, Paul Stevens.

Then came the 2008 recession, and 2009 saw negative growth. Since then, the South African property market has wobbled along at a low average rate of growth.

Stevens is cautiously upbeat about what we can expect from the residential property market going forward.

“Even before the US subprime mortgage crisis pricked the housing bubble in 2008, many commentators in South Africa said a correction here too was overdue. Although our banks held up better than those elsewhere around the world, we did indeed experience a correction in the property market.

“Now, in the midst of a pandemic, there’s growth happening in the right areas,” said Stevens.

As it turned out, house prices grew every month in 2020 and in the first four months of 2021. May 2021 was the first time in 11 months that price growth fell, and according to Lightstone’s July 2021 report, it was back in positive territory in July. Year-on-on-year house price inflation was at 5.07%, a five-year record high.

What forecasters in the early days of Covid-19 could not have predicted, was the run on certain types of properties (e.g. coastal and other zoom towns). Erica Venter of BetterBond says that their business in the Eastern Cape has grown by 194% due to increased demand.

“New developments in areas such as Gqeberha’s Summerstrand and Humewood appeal particularly to Gauteng buyers who have relocated to work remotely while enjoying the benefits of coastal living.”

Stevens pointed to the entry-level property market (<R750,000) being very active.

“We’ve seen former tenants accounting for a large portion of entry-level buyers. Thanks to the low interest rates, their monthly bond payments are the same as their monthly rental on a similar property would have been,” he said.

This will have a positive effect on upstream property purchases, he added. “Those who are selling their sub-R750,000 properties can move into the next price bracket and so on up to the higher price bands. If interest rates remain low and unemployment remains steady, we expect people to continue to buy ‘up’.”

Another factor that has happened is that the banks’ currently have a healthy appetite. TPN’s Michelle Dickens reported in her recent “Essential Industry Insights” that the number of mortgages being granted by banks has remained stable over recent years at 140,000 – 160,000 mortgages being granted per annum. In 2020 and the first six months of 2021, 70% of property transactions were underpinned by mortgages.

What next?

Stevens is optimistic about the next five years, as the current influx of first-time buyers will then be looking to buy their next property. And he has more good news, this time for landlords, who were hard hit during the lockdowns. “Tenant arrears and vacant rental properties are showing signs of recovery,” Stevens said, referencing PayProp’s latest report.

“If landlords can wait it out a little longer, the housing market (and property inflation rates) will continue to recover. Bowing out and placing rental properties on the market to sell could have an adverse result, especially if sales stock floods the market,” he warned.

The economy will be constrained for some time and, as government subsidies like TERS come to an end, Stevens expects the prime lending rate to remain steady at the current level of 7%, at least until the end of 2021 and with only small, incremental increases in 2022.

Trends to watch

Stevens is excited about the possibilities of co-buying. “During the lean years of the past decade or so, we saw adult children moving back in with their parents. The current low interest rates and a growing appreciation for the benefits of investing in property have seen South Africans looking at novel ways to finance property ownership,” he said.

South Africans have always been open to collective investment. “Not surprisingly in the current economic climate, more and more people are looking to form syndicates to buy property, whether for investment purposes (buy-to-let), or to live together in an owned home, rather than paying rent,” said Stevens.

He noted that FNB is the first bank to appreciate this trend, offering a collective-buying home-loan scheme for up to 12 people. “This is another sign of an active market and yet again proves the importance South Africans place on home-ownership. We’re in for an interesting few years, and I’m cautiously, but very, optimistic,” Stevens said.

John Loos, property sector strategist at FNB Commercial, says the pressure will gradually ease as the economy slowly recovers.

Focusing on the key drivers of movement and sales activity in owner-serviced properties, the FNB Commercial Property Broker Survey results show financial pressure to still be by far the biggest single driver in the property market.

However, the latest quarterly reading pointed to a slow continuation of the declining trend, a sign that financial pressure is gradually alleviating as the economy slowly recovers from last year’s deep lockdown-related recession.

The most recent level of financial pressure-related selling continues the improving (downward) trend, but points to the rate pace of improvement slowing compared to that of the prior quarter. Levels of upgrade-related selling also point to an improving but still financially constrained environment.

In other sales motive also possibly reflecting financial constraints, sales and relocation for “bigger and better premises” remain very low at 13.0%. This is still significantly down on the 18.4% reading from the pre-lockdown first quarter of 2020. However, it too has shown some mild improvement from the previous quarter’s 11.1%.


A further key reason for selling, which may reflect both current financial pressures on businesses as well as risk aversion due to uncertainty regarding the economic future, is the estimated percentage of sellers selling in order to move closer to their market. This percentage declined slightly further to 20% of total sellers in the third quarter 2021 survey, the lowest percentage since the survey started.

This suggests a “wait-and-see” approach by an increased portion of aspirant sellers. While it may often make sense to incur the cost of relocation closer to one’s market, in such weak economic times less relocating and more “staying put” for the time being is the likely outcome.

Examining where, by region, the greatest level of financial pressure-related selling or relocation is perceived to be, Gauteng appears on average to have higher (worse) readings due largely to Tshwane region. Tshwane was the highest in the third quarter 2021 survey at 80% of sellers, while Greater Johannesburg was a significantly lower 49.8%.

Of the three coastal metros, the highest (worst) percentage was recorded by Cape Town, i.e., 54.3%, Ethekwini 48%, and Nelson Mandela Bay the lowest percentage of 28.5%.

Financial pressure continues

The third quarter property broker survey points to financial pressure amongst property owner-occupiers remaining high but did point to some further improvement. The additional improvement during the third quarter was small and pointed to a slowing pace of improvement compared to the prior quarter’s survey results.

This slowing was not entirely unexpected because the economy itself has seen a slowing in the pace of its recovery out of last year’s second quarter hard lockdowns. The battle to achieve the last part of “full” recovery back to pre-Covid-10 GDP levels has to do with a portion of businesses across the economy closing permanently, and thus a smaller economy-wide production capability today compared with the pre-lockdown days.

In addition, existing businesses took a significant financial knock during 2020’s deep recession, business confidence remains low as a result, so they are not necessarily moving swiftly to expand their own production capabilities. Therefore, there is a still-smaller economy than 2019, and significant financial pressure on the business sector still lingers as a result.

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