Paul Stevens, CEO of Just Property, shares his thoughts on trends that will make a big impact in the property sector in 2023 and beyond.
The good news
Despite interest-rate hikes, the lending environment is still good, with interest rates not being excessively high and banks still aggressively loaning up to 110% of the property's value to the right buyers.
Properties in new developments can be purchased with no transfer costs, offering buyers the lowest cost of acquisition. There is a great opportunity to save thousands of Rands when buying into high-quality developments – see examples here.
Whether the market will swing in favour of buyers or sellers depends very much on local conditions – there is no “one size fits all” answer. Looking at inland municipalities, Ekurhuleni has the highest property inflation rate and Nelson Mandela Bay tops the coastal metros.
Freehold properties have consistently outperformed Sectional Title properties (in terms of property inflation) for the past four years but the gap has narrowed significantly since June 2022 so this is something for investors to watch. We may be seeing the tail end of the COVID-related buying patterns where larger properties offering work-from-home spaces were in high demand.
Movements in the property market will be driven more by life events (e.g. work- and school-related transfers, stage-of-life) than by short-term financial opportunities. Areas that have seen surges from a semigration perspective have been the Western Cape particularly, followed by the South and Eastern Cape. Coastal towns like Mossel Bay have seen unprecedented growth. This trend should continue if these area municipalities can provide the municipal services required to accommodate this growth.
In the rental market, rent collections and vacancies have improved vastly over this past year. To maintain this, property practitioners must work hard to continue adding value to landlords through their property and tenant management.
The not-so-good news
There is increasing pressure on the real estate market from several directions, with both the rental and sales markets being impacted by rising interest rates, the cost of living and high levels of poor creditworthiness.
The SARB's Monetary Policy Committee (MPC) is acting responsibly to boost the South African economy and curb inflation: Increases in interest rates this year - 3.25% in total - have taken our current prime lending rate to 10.5%, and it is likely to be raised again by between .5 and .75% at the next monetary policy meeting on 26 January.
The impact of this sound fiscal policy on the property market will be a further contraction in 2023 – more at the lower end of the market than at the top. We will not see a property crash but we are heading into a tougher trading environment. I fully expect an economic recovery in due course, but the necessary interest rate hikes make buyers nervous. Hopefully, the worst-case scenario is 1% over the year, and buyers should factor at least a 1% interest rate increase into their affordability calculations.
From a rental perspective, 50% of prospective tenants across the country are in some way credit impaired. Just Property has very strict tenant vetting, designed to protect the rental income of our landlords; unfortunately this means we are unable to place such tenants. This trend will continue through 2023, putting extended pressure on the rental market as the economy and consumers continue to be under pressure. Landlords will need to be realistic about the rentals they can charge, as rental inflation is expected to be under pressure in the coming year.
With an increased focus on management reporting and data analysis, our franchise owners and property professionals have a better handle on potential problems and early indicators that busy landlords may miss. For example, when tenant payment behaviours become risky (late payments or part payments), an astute property manager can take swift action. Understanding that being a rental agent/ portfolio manager is about risk management will become increasingly important.
To conclude, South Africa may be in crisis but a wise man once noted that a good crisis should never be wasted. There are still great investment opportunities in property: seek out municipalities that operate well, collect taxes and invest in infrastructure; find those that rally local businesses and communities to help provide manpower and advisory services – these will be the places to invest in now so you can reap the rewards during good times and bad.