The local property market will see a resurgence in 2024 predicts Renier Kriek, Managing Director at Sentinel Homes.
"People have been held back from buying and selling property by various factors since before the COVID lockdown, but that is about to change for the better," he says.
Factors impacting the local property market
In South Africa, property buying and selling have dropped steadily since 2021. In 2023, market volume was about 5% lower than 2019.
The factors driving this decline include load shedding, the national logistical backlog, a stalling economy, runaway inflation, the rising cost of living, and a 475 basis point increase in the lending rate since the COVID lockdown ended.
However, people's life circumstances continue to change, suggesting pent up demand building below the surface.
The number of first time buyers – a solid indicator of market demand – has also decreased significantly, again implying that unsatisfied demand exists.
Outlook for 2024
Two main events signal that things are about to change.
First, economists agree that, as inflation slows in South Africa, SARB will likely reduce the interest rate at its May or July National Planning Commission meeting in line with the US Fed.
Second, the country will hold general elections this year, and probably be led for the first time by a coalition government at national level. While this might concern South Africans, it also promises to bring new energy to solving the nation's dilemmas.
Kriek believes both these events will turn out well and will provide a release for the evident demand for property. "Then, we'll see a dramatic increase in market activity," he says.
Several lesser trends are also worth watching.
Smart money in the market
Right now, there's a lot of smart money in the market – entities that buy properties to boost their portfolios, not their lifestyle.
Interest rates on mortgage loans have decreased significantly, partly because banks are competing for a shrinking market, but also because these investors are richer, have better credit records and present a much lower risk than the average buyer. They are also paying higher deposits up to 105 percent.
In the same vein, wealthy buyers from abroad are snapping up luxury properties in Cape Town above R20 million.
This trend is sure to continue into 2024 as that smart money looks to acquire more assets before the market turns.
Semigration remains a major trend in 2024 and smaller towns will continue to be targeted for gentrification, no longer only in the popular Western Cape but across the country.
As more affluent buyers seek stock in these locations, incumbents will see their property value rocket.
This may not be the only incentive for them to sell, though. Increases in rates and the cost of living may become unaffordable for them, pressuring them to move elsewhere. But where will they go?
With more than 80 percent of all building plan approvals being in coastal areas currently, the answer is plain to see.
There is a marked increase in co-buying, that is, people buying a property together with someone other than their spouse. This includes friends, unmarried couples, investors and those with business intentions. About one in every four properties purchased is now co-bought.
This approach overcomes the gap between property prices and income, and is a way for younger people to enter the market while spreading risk between them.
Banks have also changed their policies to accommodate co-buying, with some allowing up to 12 individuals to join in the application.
The buy-to-let market is booming, especially in the Western Cape. One reason is that, due to insufficient stock and higher property prices at the coast, many semigrants rent while they shop around for an affordable property or while their new home is being built.
This growing demand provides a good incentive for buy-to-let landlords to invest in new homes and apartments, despite the high construction costs.
Almost 11% of all bond applications are currently investment purchases.
Another continuing trend in 2024 will be smaller plots and smaller properties.
High construction costs make it very difficult to create new stock that competes with existing stock in the market.
So, both tenants and buyers will have to adapt to reduced living space unless they can afford to build their own at a premium.
Relief for homeowners
The number of buyers may be low but owners are also holding onto their properties for dear life, in the face of crippling interest rates.
Unfortunately, foreclosure may have forced some to sell. Yet, the predicted drop in interest rates promises relief to those who managed to stay afloat.
It could also mean an influx of buyers for anyone who desperately wants to unburden themselves of their property.
When will the change happen?
Kriek expects the dam to break in the coming winter. This is not a prime time for property sales, however, especially in the Western Cape. During this season, people tend to buy fewer properties or buy them at a reduced rate.
"With lower transaction volumes during the winter months, there is likely to be a slight buyer's market that will turn to a seller's market in spring," he says.
MEDIA CONTACT: Rosa-Mari Le Roux, email@example.com, 060 995 6277, www.atthatpoint.co.za
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