- There is reason for optimism, despite it being a tumultuous year for South Africans politically and economically.
- A burgeoning young population is a ready-made market for buy-to-let.
- The luxury housing market is experiencing deflation, which makes it a buyer’s market; while the affordable housing market is booming due to support programs provided by the government.
In the wake of a tumultuous year that included an election, rampant load shedding, and the rather controversial issue of land reform; you could forgive South Africans for being generally pessimistic about the future of the economy, and by extension the property market.
But there is cause for optimism. A burgeoning young population that includes first-time homebuyers; increasing affordability as property prices correct; relatively low interest rates; and a greater appetite for lending among South African banks all present opportunities for property investors. (source)
In fact, ooba home loans, South Africa’s largest home loan comparison service, has seen banks increasingly granting loans of 100% and more of the purchase price to all homebuyers, not just first-time buyers.
With that in mind, here are five predictions for the 2020 property market:
1. 2020 will be good for buyers
We are currently in a buyer’s market, and will remain so throughout 2020 as the market continues to correct for the oversupply of housing. When house prices get too high, demand decreases, as people are being priced out of the market. Business Insider reported that, as of June 2019, house prices had increased by only 3.3% year-on-year in May, which trails the latest consumer price index (CPI) inflation of 4.5%. This amounts to a 1.2% decline in real property prices.
The fact that upmarket areas are hardest hit by the deflation bears this out. (source). The banks have an increased appetite to lend, and are granting home loans at more favourable interest rates, in order to stimulate the market. Statistics from ooba home loans show a 9.2% reduction in the average deposit required by homebuyers, and 7.1% reduction in the average deposit for first-time homebuyers from Q4 2019, compared to Q4 2018.
Home sellers may not be so happy about these developments, but under such conditions, many South Africans will be encouraged to invest in property and pursue their dream home.
2. Foreign investors may be more cautious, but still willing to invest
Tourism is obviously a major source of income, particularly in Cape Town; and it follows that foreign investment is a critical factor in the health of the South African property market.
Unfortunately, tourism might take a hit from the load shedding situation; while foreign investors may be keeping a close eye on developments regarding the land reform issue.
That said, the recent introduction of a direct flight between Cape Town and New York has already resulted in an increase in forward bookings from US tourists. Since the US has a large luxury travel market, this could bode well for investment in the Cape Town property market.
So while experts expect foreign investors to be more cautious than usual, the allure of South Africa’s beauty, and the favourable foreign exchange rate, may continue to outweigh any perceived negatives.
3. 2020 will be good for the affordable housing market
While the luxury housing market continues to experience price deflation, the affordable housing market is booming. This may be a result of government support for first-time homebuyers, including a subsidy for low and medium-income earners. Furthermore, properties purchased for under R900 000 require no transfer duties. (source)
With incentives such as this, we see no reason why this boom shouldn’t continue throughout 2020. Smaller properties in secure environments, such as gated communities, are expected to perform especially well. (source)
4. 2020 will be good for landlords
More millennials are entering the property market, but research from Momentum Corporate shows that only 40% of millennials are interested in home ownership. They’ve been tagged as ‘Generation Rent’ for a reason.
This is all good news for landlords, as millennials form a ready-made market for buy-to-let properties. As such, we predict an increasing number of property investment opportunities that cater to the needs of millennials, which include built-in internet capability and green technology. Landlords targeting millennials will want to buy properties that are well-suited to a “lock up and go lifestyle”, and situated in vibrant areas. 1 on Albert in Woodstock provides the perfect example of a millennial-friendly property.
5. A greater focus on sustainability
If load shedding and the recent water crisis weren’t warning enough, there’s the implications of climate change to think about. Millennials are especially conscious of the environment, and their forebears may be catching on as well.
As such, expect a trend toward more energy-efficient homes, especially since green technology actually makes homes more cost-efficient. New developments are likely to include greater energy and water efficiency, along with recycling facilities.
If any of the predictions above have made you more optimistic about the South African property market, perhaps to the extent that you’re considering investing in a buy-to-let, or taking advantage of the buyer’s market to secure your dream home; bear in mind that ooba home loans offers a range of tools that make the process easier. Start with their home loan calculators; then use their free, online prequalification tool, the ooba Bond Indicator, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.