2020 Is the Perfect Vision
Housing supply is still outstripping demand, and this will, I believe, continue into the new year, which leaves us very much still in a buyers’ market. This presents a wonderful opportunity for first-time buyers and investors alike, as they stand a better chance of securing good opportunities.
Properties in South Africa are currently selling for an average 9% below the asking price, and owners wanting to sell quickly are under pressure to accept even lower offers. This, I expect, will continue.
Also, a positive for buyers is the evidence that bond-approval rates have risen, and lending criteria appears to be slackening. Making property finance more widely available to people will be a much-needed catalyst for the local market. The FNB Q3 Property Barometer (October 2019) quotes South African Reserve Bank data, saying that these show “that mortgage advances have grown at a progressively faster pace, recording 4.9% y/y in August – the highest growth since November 2010. In fact, since the beginning of this year, mortgage advances have outpaced average house price growth in South Africa for the first time since June 2011. This in turn has boosted transaction volumes, specifically in the R700k–R1.8m and R1.8m– R3.5m price bands.”
Third quarter (Q3 19) statistics released by Ooba, South Africa’s leading home loan comparison service, show that their “home loan approval rate increased by 4.3% since the third quarter of 2018, with over 83% of our home buyers successfully securing a home loan. Year-on-year, Ooba also recorded a 5% increase in the approval rate of our 100% finance applications. This demonstrates that banks are meeting the increasing demand for finance from homebuyers who have no access to a deposit. This segment of homebuyers represents almost 60% of our applications processed in Q3 19, up by 11% since the third quarter of 2018.” (Source: https://www.ooba.co.za/resources/oobarometer/).
House prices have remained subdued for some time now with house price inflation sitting at an average of 2.9% (Source: Lightstone), which has gradually diminished from 6.4% in 2014. The lower- to mid-priced properties are the one that are showing better growth, while the top end of the market is showing very little. Limpopo is leading the way with 5.9% inflation while the Western Cape follows behind at 4.5%, significantly lower than that achieved in previous years. (Source: Lightstone)
While the outlook for home buyers is great, investors looking at buy-to-rent opportunities will need to do their homework and work with a professional agent to locate the opportunities that offer good yields. On average, rental increases are not exceeding inflation rates, and I believe this will continue, without worsening, for the first half of 2020. (Rental growth this year has remained very low, with the 3rd quarter posting the highest growth yet of only 3.99%, according to Johette Smuts, Head of Data and Analytics at PayProp.)
On a positive note, I believe rentals will start to increase in the second half of next year. This presents savvy investors with an opportunity to take advantage of the buyers’ market now, with the cautious expectation of yields improving going forward.
This past year has been a challenging one for our economy and the property market. The macroeconomic environment has remained under pressure, with rising unemployment levels and slow economic growth serving as a bleak backdrop. Looking ahead, the economic outlook for South Africa over the next two years is not very positive, with the GDP growth forecast recently having been lowered to 1.5% for 2020 and 1.7% for 2021. Within this economic climate, I do not think we are going to see any significant changes in the Real Estate sector over the next year.
The advantages that currently exist for home buyers will remain, with the possibility that rentals will begin to increase from later in 2020 offering an opportunity for buy-to-let investors who take advantage of the current “buyers’ market”.
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