Will Property Investments Post Covid-19 Still be a Safe Option?
It’s still a residential buyer’s property market, with property for sale listings having grown by up to 100% year on year to the end of 2020 on Gumtree, making it a great time for first-time buyers to get onto the property ladder. What does this mean for property investments post Covid-19?
The average increase in South African house values for 2019 was 3.6% lower than 2018’s 3.8% increase. Conversely, inflation was 4.38% and 4.62% respectively. Maintenance, rates or levies, transfer duties and other miscellaneous costs all combine to reduce margins you are relying on for your investment.
However, reality TV dreams of upgrading and flipping a fixer-upper are more challenging in a market, like the current environment, that has an overabundance of stock and a shortage of customers. Determining whether your investment thesis is a short or long-term play will have an impact on what type of items you include in your portfolio.
“This confirms fixed property as a good investment bet if you’ve got the patience to sit the current cycle out until it’s once again a seller’s market,” says Estelle Nagel, brand marketing manager at Gumtree. “While its cycles are longer than in vogue investments like cryptocurrencies, property remains a more stable option. However, always discuss your investment strategies with a financial adviser or other accredited specialist before committing your hard-earned cash.”
Opportunities in rentals – with a caveat
Investors intending to expand their rental property portfolio should note that this side of the market is under price pressure too. Paul Stevens, CEO of Just Property, suggests that the rental market has not seen activity like current levels since the 2008 financial crisis.
“Vacancies and tenants in arrears are at all-time highs, and with TERS ending in March 2021, I think we are going to find rental collections will continue to be under pressure,” he says.
More stock likely to keep prices low
According to FNB data from Q4 2020, 20 percent of properties on the market valued at R2.6m or more were being sold by South Africans intending to move abroad.
The recent cancellation of Section 12J investments – communicated during this year’s Budget Speech – is expected to have a direct impact on multiple-property ownership. Some HNW (high net worth) individuals were exploiting loopholes in S12J to structure holiday homes as venture capital investments in hospitality.
With the increase in emigrations and the change in Section 12J status from the end of the next financial year, the market is likely to see more ‘desperation deals’ or ‘seaside specials’ coming online, offering even more opportunity for buyers who are willing and able to the play the property long game.
These trends are also likely to boost ‘workation’ buys, where industries that have shifted online successfully are seeing their executives leave office-tied environments and move to more pleasant locations to complete their work tasks remotely.