After a turbulent 2020, are we seeing a pattern of recovery starting for South Africa? While the entire global stage has been impacted by the pandemic, both South African property and the economy was particularly hard hit.
Now, after a bounce back at the start of 2021, the country is forecasting a brighter future ahead.
Each month, we’re examining the South Africa property trends in 2021, taking a closer look at the local market and seeing how that compares with other global markets – with a particular focus on why investors are investing in UK property from South Africa in 2021.
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Will We See a Pre-Pandemic Economy in 2023?
While Covid-19 has had repercussions for economies across the globe, South Africa’s existing struggles pre-pandemic were particularly exacerbated by lockdown. The economy was in a downward spiral throughout 2020 with record-breaking contractions, but the Covid-19 vaccination programmes provided South Africa with a light at the end of the tunnel.
Unfortunately, a notably slower vaccination programme has somewhat diminished this light. As of June 2021, just 1.3% of the South African population was fully vaccinated, most of which are medical staff, and with new variants pushing the infection rate, this is having a domino effect on the health of the economy.
In the second week of June, South Africa recorded almost 62,000 active Covid-19 cases, which had previously fallen to 20,000 in late April, making the seven-day new infection rate the highest it has been in four months.
With lockdown escalating to level two as a result of these climbing cases, the real GDP rate fell 3.2% in Q1. While more forgiving lockdown rules in the coming months could have the potential to boost GDP growth to more than 5.9% for the year, PwC is not forecasting a pre-pandemic economy before 2023.
Employment is Expected to Increase by 444,000 in 2021
Generally speaking, a struggling economy and rising unemployment rates go hand in hand, and South Africa has been no exception. During Q2 2020 – the height of the pandemic – South Africa lost 2.2 million jobs, highlighting the extent of the country’s economic struggles.
While the economy regained 876,000 of these during the second half of 2020, the recent resurgence in Covid-19 cases could have implications for this progress. South Africa finished 2020 with an unemployment rate of 32.5%, which rose to 32.6% in Q1 2021, making the y-o-y employment rate 8.5% lower.
Translating into one in 12 less jobs compared to 2020, many South African CEOs are now uncertain about what the future holds. According to PwC’s 24th Annual Global CEO Survey, 95% of respondents are somewhat, or extremely, concerned about unemployment levels, in comparison to 61% globally.
Nonetheless, forecasts remain relatively positive with 444,710 additional jobs expected to emerge by the end of 2021. While this won’t fully compensate for all Covid-19 job losses, South Africa’s employment rate would be at a similar level to that of 2015. With a gradual recovery on the horizon, pre-pandemic employment levels may not return until 2025.
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Interest Rates Set to Remain Low for the Year
Despite economic uncertainty, the Rand has reached its strongest level against the US dollar since the start of 2019, driven by a combination of favourable commodity prices, recovering industrial activity and strong growth in certain areas.
Impacting various economic factors across South Africa, the inflation rate is now nearing the South African Reserve Bank’s (SARB) target range, which will continue sustaining low interest rates. In February 2021, the South African inflation rate reached 4.4%, a considerable rise from April’s 2.9%.
This growing positivity is welcomed news across South Africa, especially after inflation dropped to a 15-year low in 2020. However, the inflation rate shows no sign of returning to these levels, and instead, is expected to remain well within the SARB’s target range for the remainder of 2021 at 4.4%.
While South African banks expect this to remain for 2021, it is only a matter of time until the central bank begins lifting lending rates. PwC predictions suggest that early 2022 will see these rates return to a somewhat normal level, with the repo rate also enduring an increase of 0.5 percentage points.
Consumer Confidence Towards the Property Market Improves
From previous industry roundups we know that the South African market has slowly but surely become a buyers market, with low interest rates and reasonable property prices sustaining the demand for property.
The extent of this consumer confidence has been revealed by the Asba Homeowner Sentiment Index (HSI) for Q1, which has highlighted consistent improvements over four consecutive quarters. This positive buying sentiment emerged during Q2 2020, and has seemingly been on an upward trajectory ever since.
More specifically, the HSI showed that buyer sentiment has reached 82% – the highest since the introduction of the index. Unlike the UK market, South Africans are also now more inclined to buy a property as opposed to renting, with a combination of factors driving this growing trend.
Not only did 62% of respondents buy a property based on its investment value, but 49% also bought a property because they believe it will accumulate in value over time. This buyer sentiment has undoubtedly been driven by the favourable lending conditions in South Africa, and with low interest rates set to remain until the end of the year, this consumer confidence could continue growing.