By Charndré Emma Kippie
SA’s Property Markets
With the Covid-19 pandemic hitting South Africa at the beginning of 2020, various property economists and key players in the sector made predictions regarding the rapid decline of housing prices. It was forecasted that the situation would be comparable to that of the downfall witnessed throughout the global financial crisis of 2008.
The rate of home purchases in SA was already ‘underwhelming’ pre-Covid. As Covid-19 was an unprecedented knock to our country’s economy, many commercial banks, mortgage originators, and even real estate agents indicated that we could expect the price of homes to further decline by 10%-20%.
Surprisingly, these forecasts turned out to be inaccurate, as the housing market in fact witnessed an unexpected performance. According to Lightstone Property — a provider of information, valuations and market intelligence surrounding South African property markets — housing prices increased by an average of 3% for 2020 as a whole.
And when one factors in the average consumer price inflation of 3.3% for 2020, these prices only fell by 0.3%. This was a less devastating outcome than expected, as many of the other sectors of the South African economy took a much greater blow, financially.
Popularising home loans
Commercial banks have now reported a rise in renewed home ownership interest by consumers. South Africa’s largest home loan provider, Standard Bank, reported that they granted new home loans throughout the country at “record levels” in the midst of the pandemic. They received 258,000 new applications and granted R56.5-billion in mortgage loans during 2020. This was a 13% increase from 2019.
Many other financial institutions also witnessed an increase in the amount of home loan disbursements once the South African government eased lockdown restrictions – a trend expected to slow down throughout 2021 as banks become more cautious due to employment instability. The easing of these restrictions allowed citizens to move freely between homes, into new property, and also prompted deeds offices to reopen and track property sales transactions more effectively.
Gerhard Kotzé, managing director of the RealNet estate agency group provides comment:
“We are already seeing bond approval numbers drop from the highs of July and August 2020, and fewer grants for 100% home loans. The possibility of large-scale retrenchments this year in big private sector companies and the public sector is especially worrying.”
“Nevertheless, we expect price growth and possibly even real (after inflation) price growth in the under-R2m market this year due to steadily tightening inventory constraints, especially at the lower end of this sector”, says Kotzé.
Interest rates drop
South Africa’s property sector has been aided by the Reserve Bank’s decision to cut interest rates by 3%. This decision lowered the bank’s prime lending rate to 7%. With this decrease, it became more affordable for existing homeowners to regularly pay off their home loans. In conjunction, the costs of home ownership became cheaper than at the beginning of 2020.
Also, factoring in transfer duty (a tax levied on properties valued above R1-million), key property industry leaders estimated that these interest rate declines made homeownership 30% cheaper. This prompted an increase in first-time home buyers.
“They [first-time homebuyers] are keen to get an offer to purchase signed and accepted as quickly as possible so that they do not lose out. At the same time, the banks are still keen to lend and first-time buyers can find favourable conditions”, says Seeff Property Group Chair, Samuel Seeff.
Although these ‘favourable conditions’ have generated a demand in selling and purchasing activity in property markets, this is likely to change considerably even post-Covid – deemed as the ‘Post-Lockdown Recessionary Phase’.
2020 Property overview – what happened?
Retailers in South Africa were faced with the task of curbing the spread of the virus. In some cases, stores closed down permanently due to a lack of sales and crippling rental costs. On the other hand, retailers who opted to continue operations faced restrictions on ‘non-essential services and goods’. Unable to trade during the 21-day lockdown period, South African landlords and retailers experienced many disputes regarding still having to pay store rental fees.
During the lockdown period, and even thereafter, production rates decreased gradually across South Africa, increasing the rate of unemployment and leaving facilities bare. Rental growth, thus, slowed down even further while confidence in local businesses diminished – this put a damper on future developments.
The office market received a total transformation during the pandemic. Businesses witnessed an increase in demand for open plan office environments, hot-desking and serviced offices. This prompted a reduction in the amount of office space allowed per person. Many citizens were forced to work from home due to lockdown. With remote working set to be the new norm, many office buildings have been left unoccupied.