5 Factors that Could Change the Course of Real Estate in 2021
Having started the year in technical recession only to be hit by a pandemic, few would have predicted that 2020 would turn into a successful year for property. Thanks to an unexpected wave of buyers triggered by low-interest rates, motivated lenders, and excellent value on the market. However, South African property has emerged from 2020’s challenges with its head held high.
Now, as we enter 2021, the question is whether the market will successfully retain its buoyancy. According to Schalk van der Merwe, franchisee for the Rawson Properties Helderberg Group, the following factors could tip the scales either way.
1. Interest rates
Outlook – Good!
“With interest rates taking the lion’s share of credit for property’s success in 2020, it stands to reason that they will continue to play an important role in 2021,” says Van der Merwe.
He adds: “Thankfully, it’s looking very likely that low-interest rates are here to stay for at least the first three quarters of the year, which means property finance is going to remain very affordable for buyers.”
“While it is possible that interest rates may drop further during the course of the year in response to the ever-evolving circumstances surrounding the pandemic, it is always advisable for homeowners to make provision for the possibility of a minor increase, as this will directly affect the repayments on their home loan,” recommends Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
2. The economy
Outlook – Moderate
Interest rates are only one contributing factor to buyer activity. Income is another, and it relies heavily on economic growth.
“Realistically, our economy is in a very compromised position at the moment,” Van der Merwe acknowledges. “As a result, unemployment is at an all-time high, and income growth is low. If we can’t turn that around sufficiently, property market activity will be constrained and momentum less sustainable.” Current forecasts peg economic growth for 2021 at between 2.5% – 3.5% – an encouraging sign, according to Van der Merwe.
Outlook is – Risky
As a long-term investment, buying property requires a reasonable level of confidence in South Africa’s future. This confidence is heavily influenced by political events and upheaval, particularly for more conservative investors and those in older age groups.
“Over-fifties used to make up a healthy percentage of property purchases in previous years,” says Van der Merwe, “but political instability has caused this to decrease to a notable degree. Now, with Covid-19 demonstrating the resilience of real estate – and riskiness of other investment types – we have an opportunity to turn this demographic’s attention back to property.”
A return of cash-flush, over-fifties would be a powerful boost to the property market, but would require strong political leadership and some indication of achievable plans for South Africa’s future. Should President Ramaphosa and the ANC manage to return South Africa to a positive-looking trajectory, however, Van der Merwe says more than just older age groups may be enticed to invest in local property.
“Increased political stability would also improve property’s appeal for foreign buyers,” says Van der Merwe. “This could provide an important boost to the luxury market, which remains relatively affordable to those with stronger currencies.”
4. Tenant reliability
Outlook is – Risky
While property sales bloomed in 2020, the rental space faced many challenges. “The number of tenants in good standing dropped from 81.52% at the beginning of the year to a dismal 73.5% by the second quarter,” he says.
“A good tenant is worth far more than a few percent higher rental,” adds Van der Merwe. “Growth will return in time. For now, the emphasis has to be on preventing vacancy.”
Property entrepreneur and owner of Only Realty, Grant Smee says: “Quality tenants are hard to come by even in the best of times. Be sure to conduct credit checks and ask for references. A full deposit is also of the utmost importance. To landlords with tenants who are struggling to make ends meet, try to reach a compromise and make sure that everything is in writing.”
5. Shifting trends
Outlook is – Good!
While Covid-19 has had little direct effect on property purchases, Van der Merwe says it has influenced buyer and tenant trends to a notable degree. Not only has its economic fallout (unemployment and job insecurity) brought affordability to the fore, it has also shifted demand for specific features in both commercial and residential property.
Remote working remains a key driver for relocation during the COVID-19 pandemic. Smee adds: “To scale back on price and get more space, many South Africans are moving to outlying areas as they no longer need to be close to the office. Here, buyers get a lot more ‘bang for their buck’.”
“The key to avoiding negative consequences from this is going to be adapting to the new trends,” says Van der Merwe. “In the commercial space, this means working with municipalities to rezone underused properties for mixed-use. In the residential space, we may see the opposite happening, with more people applying to operate small businesses from home.”
Van der Merwe concludes: “It’s our job as property professionals to help owners and landlords navigate the shifting landscape and keep their investments performant, despite fluctuating conditions. I believe this is entirely achievable as long as expectations are kept realistic.”