The Covid-19 pandemic has had a multifaceted impact on various economic sectors. One of the sectors in question is the property and real estate sector. The untravelled Covid-19 terrain means that buyers and sellers have had to make risk calculated decisions. With the lockdown regulations being gradually relaxed and many economic activities becoming active again, it’s expected that the property industry will also experience some sort of movement. For property buyers, cautious optimism and being realistic should be the best approach.
What’s the state of the property market?
South Africa’s residential property market is proving to be unexpectedly buoyant as lockdown regulations ease and buyers can again enter the market.
Several recent statements to this effect by real estate agency groups have now been confirmed by FNB through its recent Residential Property Barometer.
“Our initial expectations were for the pandemic to have a more chilling and lingering impact on activity, with pent-up demand filtering through only later this year,” said the bank’s property economist Siphamandla Mkhwanazi.
“In contrast, the volume of new mortgage applications has rebounded beyond the pre-lockdown levels and across the price spectrum.”
According to FNB, annual house price growth went up by 1.4% year-on-year in July 2020. FNB research shows that the supply of properties remains stronger than demand, but the gap has started narrowing from May. By comparison, prices rose only by 0.7% in June and 0.6% in May.
FNB says the upsurge in new mortgage applications was supported by the volume of buyer leads, derived from web traffic to property portals, which rose above expectations during July.
The residential property price growth noted during July (1.4%) is the same as that achieved during March 2020, prior to lockdown regulations.
What’s the key factor driving this buoyant return?
One of the obvious, but significant changes caused as a result of the pandemic has been the Reserve Bank’s bold decision to slash interest rates by 300bps this year to date, to an almost 50-year low of 7 percent. For many prospective buyers, this is a once in a lifetime opportunity to acquire property.
Why is it a good time to buy a property?
Most cities and areas in South Africa are still experiencing an oversupply, which makes it easier to choose the best property from a broad array of properties.
With such an oversupply, the buyer holds a lot more negotiating power when buying property.
Most banks and financial lenders have relaxed their bond and lending conditions. Low borrowing conditions and favourable mortgage lending conditions have led to many buyers being granted 100% bonds.
Why should buyers be realistic?
Currently, the SA economy appears headed for what may be termed the “Post-Lockdown Recessionary Phase”. The coming quarters may not technically be recessions, growing positively off the recent lockdown period’s very low GDP level. But the foreseeable future definitely looks “recessionary” in the sense it may be some time before the GDP level gets back to the pre-Covid-19 levels seen in 2019. A portion of businesses likely didn’t survive lockdown, and a portion are unlikely to survive the entire aftermath, a period where many of them may have sales levels significantly lower than those of 2019.
There is therefore a risk of over-expectation as to how quickly the economy and thus the property market can more-or-less “fully” recover. There is a lot to think about as the market emerges from lockdown, but consumers and property buyers must apply caution against expecting too much too soon. We first have to work through a lengthy period of “recessionary” conditions and slow recovery before all things brighten up.