Tough, but good year ahead

2019-01-22 06:01

Due to the uncertainty pertaining to land reform policies, 2018 was not a great year for the property market.

However, there are those that think the worst is over and that once we have put the elections behind us we will start to see things improving, for both the property market and the economy at large.

With the country having just emerged from a technical recession, after the gross domestic product contracted for the second quarter in a row, indicators suggest another tough year ahead of us, says Paul Stevens, CEO of Just Property.

“The country’s rapidly increasing cost of living, predominantly a result of the increasing cost of fuel, has put severe pressure on consumer spending. Inflation is expected to be higher in 2019 and the possibility of interest rates increasing looms large. Both homeowners and tenants are going to be increasingly stretched to meet their monthly home loan or rental commitments.”

Despite this, there have been forecasts predicting a higher growth in 2019 than we’ve had last year.

“We are in a buyer’s market and this will continue through most of 2019,” Stevens predicts.

“Those who qualify for finance or who are able to buy for cash will be in a good position to take advantage of the current conditions. Most of the property sales activity in the past year has been in the R300 000 to R1 500 000 range. During the course of the coming year, I expect this to continue. Government is focused on developing our economy, at least in part through the development of entrepreneurs. If successful, we should see an increasing number of people able to enter the lower end of the property market.”

Lightstone’s Residential Property indices (October 2018) indicate that the average house price increase for the 2018 period, across South Africa, has been 3.77%, with the Western Cape performing best at a 9.9% increase and the Northern Cape showing the least growth with only 1.1%.

Stevens estimates that “this low growth rate will continue and in particular, I think we will see more normalisation, with the Western Cape possibly showing a lower growth rate in the coming year, despite the relief from the drought.

“From a rental perspective, I see our current conditions with high vacancies and low escalations across most of the country, fuelled by lower-than-normal demand, continue into 2019. Historically, we have seen rental demands increase during tough economic times. But this is not happening now. Our data partners, TPN, report that average tenancy periods have increased to 18 months and the average age of tenants is now 32 (up from 24 in 2008). Their data shows that fewer people are entering the rental market and the majority of those that are, rent for less than R7000 per month. The short-to-medium-term opportunities for property investors and landlords therefore lies in properties that allow for multi-generational living and in properties that can be rented for R3500 to R7000 per month.”

Exacerbating things on the rental front is the increasing delinquency rates of tenants who are applying for tenancies. Along with this comes decreasing rental recovery rates. Stevens advises that for the upcoming year “landlords should screen and manage their tenants more carefully than ever. Good property management agents (for example, those with access to tenant payment behaviours and cost-effective rent guarantees) have an opportunity to add value to landlords. Managing risk and correctly pricing properties will be of the utmost importance.”

Economics aside, 2019 will bring continued change to the way buyers and sellers, and tenants and landlords, are able to transact, says Stevens. Technology is being harnessed and the real estate industry is changing for the better. Long-held, traditional ways of doing business that frustrate clients are being challenged. This is bad news for those who are unwilling to embrace change and good news for the end-consumers, says Stevens.

“Property transactions are going to be managed more efficiently and with greater transparency than ever,” he insists. “They will be easier and less expensive. I don’t believe that systems and technology will replace real estate professionals; the circumstances around property transactions are too diverse, convoluted and unpredictable. I do however believe that we have an opportunity to augment the skills of our real estate professionals through the use of technologies, thereby delivering a far better level of service to our clients. This prospect is what I most look forward to in 2019.

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