Record low interest rates, keen sellers and lenders make South African property a good investment prospect at present.
Covid 19 has hit many South Africans hard, but it has also resulted in the government trying to stimulate spending, with the SA Reserve Bank keeping the repo rate at 3.5% - the lowest it has been in decades.
With prime at just 7%, repayments on a home loan of R1 million that would have cost about R10 000 a month a short time ago have dropped to around R7 600 a month. There is plenty of stock on the market and banks are also offering 100% bonds to qualified buyers, so you may even be able to buy without a deposit.
Excellent value
Berry Everitt, chief executive of the Chas Everitt International property group, says: “Whether you are a home buyer now or an investor, there is exceptional value on offer in almost every price bracket in SA. And, thankfully for the property market, these opportunities are accessible to an unusually high number of buyers currently because of the low interest rates.
“Price growth has been outpaced by salary growth for the past few years, which has helped to make home ownership more affordable for many working South Africans. But it’s the low interest rates that have tipped the scale and are driving the very high number of first time buyers at the moment, as well as much higher levels of sales activity among repeat buyers than we expected going into the Covid-19 lockdown.
“This is especially true in the R2.5m to R5m price bracket, where there is still an oversupply of stock. Many buyers are finding that a careful upgrade now represents a really good investment, especially if you have a decent deposit from the sale of your previous home.”
Meanwhile, he says, buy-to-let investors should note that the demand for rental accommodation is set to grow as the economic effects of lockdown become more apparent and that well managed properties can still deliver great returns.
He warns that buyers should not sit on the fence now, because the current situation won’t last.
“Prices probably won’t rise much more this year, but the oversupply of stock will be absorbed and a large number of sellers are withdrawing from the market for various reasons, including putting their own relocation plans on hold,” says Everitt.
“Developers also have very few plans to bring new projects to market and are mostly completing the projects that were already under way when Covid-19 hit. This means that by this time next year, home prices could be significantly higher, and interest rates too.”
Tangible assets
Low interest rates are currently making it much easier to invest in property in SA, says Gerhard Kotze, managing director of the RealNet estate agency group, and with economies and equity markets around the world in trouble because of the Covid-19 pandemic, many local and foreign investors are turning back to bricks and mortar and other tangible assets.
He says the SA property market offers some promising areas of opportunity for those with a medium to long-term view. These include:
•Small rental units in the areas of the big cities that are within walking distance of work opportunities in big industrial complexes or essential services such as a big hospital - for example, Alberton and Kempton Park in Ekhuruleni or Tygerberg in Cape Town.
•Units in cheaper areas that offer easy access to public transport like the Gautrain – for example Centurion, Midrand and Braamfontein in Gauteng, and Milnerton and Table View in Cape Town - are also popular.
•At the higher end, the increase in remote working has boosted the popularity of live-work-play areas such as Century City, Melrose Arch and Menlyn Main.
“There are almost always tenants for studio and one-bedroom apartments in such areas, and although rentals are generally not as high as elsewhere, employment in essential service jobs and remote-working IT jobs is usually more regular so the default rate is also not high, provided your units are well-managed and in well-secured and well-run complexes,” says Kotze.
Sectional title rental units in the most popular coastal holiday destinations around Durban and Cape Town are also good prospects, provided you can negotiate a “bargain” price.
“And this should not be too difficult, since there are many units being ‘offloaded’ now by owners who can no longer afford them. The reason we are advocating this type of purchase – at the right price – is that most South Africans are likely to be taking their holidays locally for a long time to come, and flocking back to their favourite coastal resort towns,” says Kotze.
“Such units can also be used for your own holiday accommodation, preferably in the off-season, as your earnings from short-term tenants will be highest in the peak holiday seasons. Once again, though, if you want to get the best yield from such units, they must be well-managed.”
Another good investment option at present is in retirement units in established, well-run retirement villages that offer assisted living and frail-care facilities.
“The over-60 age group is the fastest-growing sector of SA’s population. But a very large percentage of our senior citizens cannot afford to buy into retirement villages, and an increasing number prefer to rent in case they decide to move from the city to the coast, for example, or from SA to join their children in another country.
“Many adult children also rent retirement village apartments or cottages on behalf of their ageing parents. This means there is strong demand for reasonably-priced rental units in well-located retirement villages, and the risk of default or lengthy vacancies is usually extremely low.”
The most popular retirement destinations in SA include Hermanus, Mossel Bay, Knysna, Plettenberg Bay, Jeffery’s Bay, and the KZN Midlands and South Coast, as well as Randburg, the East Rand and the eastern suburbs of Pretoria.
Sound investment
Tony Clarke, managing director of the Rawson Property Group, points out that the earlier you invest in property, the greater the rewards. However, he believes it’s never too late to start looking into buying property.
“Properties appreciate when they’re properly looked after and this capital growth can create a very useful nest-egg in future. Another important factor is the ability of property to generate rental income that keeps pace with inflation.
“Now is an excellent time to buy due to the combination of record-breaking low interest rates, excellent value for money on offer, and very motivated lenders offering up to 100% bonds to qualified buyers. This scenario is creating a once-in-a-lifetime investment opportunity.
“At the same time it’s not advisable to push the boundaries of affordability. The SA economy is still under extreme pressure and job security is low. It would be much smarter to use this time to buy a cheaper home and pay off your home loan faster than to push your limits and risk losing everything if your finances take an unexpected knock.”