South African Residential Market Proves More Resilient than Thought
In July, we speculated about who might benefit from historically low interest rates. Since then, sales results have shown that South African property buyers have taken advantage of the situation, with the FNB House Index revealing that annual house prices were more resilient to the fallout from Covid-19 than many in the industry anticipated.
To quote from the FNB analyst:
“The pandemic does not appear to have had as much of a chilling effect as we might have feared, at least at this stage. In fact, results from the FNB Estate Agents Survey showed that while overall activity plummeted in 2Q20, the pandemic had not yet led to exceptional market discounts. The average discount (difference between the final sale price and sellers’ initial asking price) was estimated at 12% in 2Q20, relatively unchanged from 13% in 1Q20.”
The Seeff Property group also reported a significant increase in sales, with sellers of more affordable and realistically priced homes often achieving full asking price. Link: https://businesstech.co.za/news/property/423528/south-africas-property-sales-highest-in-six-years-where-people-are-buying/
“This is especially true below R1 million where buyers are benefiting from an exemption of transfer duty, the low-interest rate and a favourable bank lending climate, but ranging to about R4 million, depending on the area,” Samuel Seeff, chairman of the Seeff Property Group was quoted in a press release. Upmarket areas such as the Atlantic Seaboard, Southern Suburbs, Sandton, Pretoria East, Zimbali/North Coast, and Plettenberg Bay are all reporting increased interest.
Perhaps unexpectedly given the ban on international travel, foreign buyers made purchases worth some R175 million over July, with a beach bungalow going to a Russian buyer for R18 million. Seeff reported that their buyers were predominantly from the UK, Germany, the Netherlands, France and Belgium, and also an increase in Zimbabwean buyers. Plettenberg Bay has also benefited from buyers looking to escape to the coast, with two sales of R40 million, both at the full asking price.
Commercial Exchange, which has a good market focus in properties developed or redeveloped for rentals or sectionalised apartments for sale, has seen an uptick in the demand for developments shifting from the inner cities to traditionally higher value suburbs in the greater Sandton and Bryanston areas. We anticipate that this will extend to Fourways as transport infrastructure develops in these areas.
The picture is not entirely rosy, however. Research by the United Nations Development Programme (UNDP) has indicated that Covid-19 has wiped out a third of South Africa’s middle class. Families who might otherwise have been in the market to buy a home are now renting or have had to move in with family to make ends meet. This will inevitably have a knock-on effect on the property market, as well as investors buying to let.
Investors looking for opportunities should also take the psychological effect of lockdown into consideration. Being confined for long periods forced people to reassess their lifestyles and what they want out of their spaces. Security concerns along with the desire for gardens and open areas could see an increase in interest in lifestyle estates, both to rent or to buy.
Covid-19 has also made it clear that it’s possible to be productive while not attending meetings in person. We expect to see an increase in senior executives and professionals moving to an online-only working environment while taking advantage of the lifestyle offered in coastal areas and residential estates. The growth in participation in bird watching and “garden game ranger” Facebook groups over lockdown could lead to increased interest in purchasing homes in wildlife estates, especially in areas such as Hoedspruit.
Covid-19 was yet another reminder of the vulnerabilities of our healthcare system. Buyers looking for retirement homes will be paying special attention to the presence of local private hospitals and access to quality healthcare outside of big cities. With limited options to emigrate for older South Africans, properties that offer an appealing lifestyle together with security will continue to have appeal.
As always, we urge investors to do their homework and consult a property expert before taking the plunge. There may be many obstacles out there in South African property in 2020, but there are also opportunities for those who know how to spot them.