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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South Africa Follows Suit With a Suburban Shift
Coronavirus has impacted every country across the world differently, but one consistency remains globally: many tenants and homeowners are swapping urban areas for quieter locations. A trend accelerated by Coronavirus, the likes of central London and Hong Kong have been experiencing this exodus of city dwellers for some time.
With national lockdowns and rigid restrictions forcing the majority of South Africa (and the world) to work from home, estate agents are inevitably seeing the same trend across several provinces. The increasing sense of permanency surrounding remote working has encouraged buyers to realign their living quarters with their new demands, many of which include bigger spaces in areas that offer an improved quality of life.
This shift has been prominent in South Africa for several months, especially in Gauteng. Gauteng province is home to the majority of the country’s financial services, making it an employment hub for young professionals. As a result, executive workers and their families have long resided in the urban metro for easy access to work. But as remote working is now the ‘norm’ for many, one of many South Africa property trends in 2021 we’re seeing is Western Cape becoming a haven for professional workers and their families.
Western Cape – the city of Cape Town in particular – has always been a popular holiday destination amongst South Africans from other provinces, but with new flexible approaches to working, it is now brimming with city dwellers. The peaceful beaches, exceptional schools and community cohesion are just a few reasons why long-term relocations to suburban spots now make up 90% of estate agents’ enquiries.
Is an Economic Rebound on the Horizon?
Like many countries, South Africa’s 2021 Budget is crucial for both the local community and the wider economy. Having revealed a revenue shortfall of R312 billion in the emergency Budget mid-2020, many expect that this rising debt will lead to additional cuts to spending and private-sector investment, in an attempt to ‘change fortunes’. To recover from the 7.2% decline in economic output, it is likely that the country’s recovery plan will dominate the Budget and inform South Africa property trends in 2021.
2020 saw South Africa delve deeper into an existing recession, with GDP falling 16.4% between the first and sector quarter of the year, causing an annualised growth rate of -51%. In many ways, this recession has been more severe than the 2009 global financial crisis, which saw the country’s GDP fall 6.1% in one quarter – a moderate figure compared to what we have seen in 2020.
However, with consumption having unexpectedly bounced back at the end of 2020, and the rollout of the Coronavirus vaccination programme, the prospects for 2021 are becoming much brighter. As a result, the country is forecasting some degree of economic rebound in the coming months, followed by a full recovery by 2022.
A Coronavirus vaccination programme is, undoubtedly, at the centre of numerous (if not all) economic recovery plans across the world. With the spread of numerous vaccines, the global output is expected to increase 5.5% this year, while South Africa’s output is forecasting growth of 3.3% in the coming months. While this economic output is a light at the end of the tunnel, will it be enough to catalyse a full economic rebound in 2021?
Although an attractive number compared to last year’s statistics, this 3.3% growth remains lower than the emerging and developing market average, which is standing at 6.3% for 2021. With this moderate growth, experts anticipate that it could potentially take four years for the economy to reach pre-Covid-19 levels.
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Low Interest Rates to Prop Up the Property Market
The global pandemic has only exacerbated South Africa’s economic struggles, with an interest rate that reflects this. Much like other countries around the globe, South Africa lowered its interest rate to encourage consumer borrowing and spending, and to ultimately, sustain the economy.
With a ‘prime lending rate’ of 7%, this is the lowest figure the country has seen in decades, and there are no signs of it increasing anytime soon. As national restrictions continue across the country, experts anticipate that at the upcoming South Africa Reserve Bank meeting, this prime lending rate will remain for the foreseeable future.
Although low interest rates often signify economic struggles, experts predict that this bank rate will ‘prop up’ the property market. In making mortgages more affordable and accessible to a wider demographic, most homebuyers will use this opportunity to either get on the property ladder or to move house. Alongside this increased demand for suburban property, several provinces across South Africa are anticipating price growth in 2021.
Considering Cape Town’s popularity amongst most of the country’s population, it is no surprise that the city is on route to endure the biggest increase in property prices in the coming months. The peaceful beaches and community feel of Cape Town are expected to drive 4.5% growth, while Johannesburg will follow closely behind with an anticipated increase of 3.07%. However, not all coastal towns are set to experience the same growth as Cape Town, with the likes of Gbergha and East London forecasting moderate increases between 0.64% and 0.93%.
With the low interest rate giving buyers the opportunity to save up to 30% on borrowing costs, many South Africans will inevitably use this time to make a move, or to at least consider their options. For city dwellers, it is an ideal time to relocate, not only can they upscale their lifestyles by getting more bang for their buck in the suburbs, but this low bank rate will allow them to downscale their costs even further.
Will the Rental Market Recover 2021?
While South Africa’s economic struggles over the last 12 months have been apparent, the immediate effects on the property market have not been as obvious. However, the PayProp Rental Index annual review for the year emphasises the impact Coronavirus has had on the rental market.
Much like the wider economy, Coronavirus only contributed to the country’s already-struggling property market. Since 2017, the rental market in particular has been in a downward spiral, with growth falling year-on-year. While rental growth briefly reached 7% in 2017, it has since been averaging between 3% and 4%, and 2020 was no exception.
As a result of numerous national lockdowns throughout the year, unemployment rates soared, forcing landlords to reconsider their rents in order to occupy their properties. Although premium properties became more affordable, a significant lack of demand led to an oversupply of vacant rental properties. The absence of international travel and tourism also saw many short-term rentals enter the market, contributing to the dwindling rental growth throughout the year and marking another one of the prominent South Africa property trends in 2021.
Not only did rental growth decrease with every quarter in 2020, but for the first time since the Index launched in 2012, the growth almost fell into negative figures. From 3.2% growth in Q1 to just 0.2% in Q4, the average rent was 0.3% lower than in November 2019. To contextualise the lack of growth we’ve seen in the past months, the average rent increased from R7 844 in Q4 2019 to R7 854 in Q4 2020 – just an R10 rise in the space of 12 months.
With several Coronavirus vaccines now in circulation, a potential economic rebound could onset a much-needed recovery of the rental market. However, until the economy and unemployment rates stabilise, affordability will remain a key factor for tenants. As a result, head of data analytics at PayProp, Johette Smuts, expects that uncertainty surrounding the strength of an economic rebound could mute rental growth for some time.