Where South Africa’s property market could end up in 2020

With continued revelations of mismanagement across the public sector, corruption and the looming threat of junk status downgrade by Moody’s, consumers are finding it difficult to be positive.

There are, however, real opportunities to be found for potential buyers and investors specifically in the low-end affordable market, according to data and analytics group, Lightstone.

Lightstone analytics director Paul-Roux de Kock, said 2019 was the first time that actual inflation came in under the group’s ‘low road scenario’ forecast.

“After starting the year off with negative GDP growth in the first quarter South Africans were desperately looking for an economic silver lining throughout 2019, De Kock said.

“With not much of an economic turnaround we saw the low road scenario play out, which means we are starting 2020 off with the possibility of house price inflation breaking through the 0% barrier in the second half of 2020 and ending off the year with an 1.3% decline in home values should the low road scenario play out again.”

According to De Kock, under the most realistic scenario, we can expect more of the same and that house price inflation will end the year still in positive territory, but just barely above 0%.

“Although the current economic status quo does not bode well for the health of the property market, the positive news here is if you are looking to purchase a home, it’s a great time to do some bargain hunting.

“Suffice to say the current grim outlook will likely not last forever with property still being a sound long term investment,” he said.

This is supported by a high road scenario forecast where Lightstone predicts a positive turnaround of house price inflation in the second quarter to end the year off on a positive trajectory.

When evaluating the different value bands’ performance, the trend is similar to what was experienced in the last two years, Lightstone said.

The affordable market is expected to remain the fastest growing value band, which was more robust during the last four years when the higher end of the market increasingly suffered at the hands of low economic growth and policy uncertainty.

During 2019, the luxury property sector entered nominal house price decline for the first time since the 2008 recession and is predicted to experience further negative growth during 2020.

“Another unique finding within the value band forecasts is that during 2020 sectional scheme growth is projected to outperform the freehold property sector with positive house price growth,” De Kock said.

Buying or renting?

According to Stefan Botha, director of property and development marketing group, Rainmaker, South Africa’s property is challenged by political instability and macro-economic forces, and most recently the threat of land expropriation.

Botha said that South Africa faces an up and coming buyer market, with market demographics shifting. Specifically, buyers  born between 1980-2000 (so-called “Millennials”) are entering the market, and don’t have the appetite for the risk associated with huge capital investment.

“As a result of this, many are opting to rent and invest, Botha said, “This means you buy a property in your area of choice, and let it out to cover your costs while you choose to rent elsewhere at a much lower cost.

“This means that there really is a large rental market which is also a buyer market; they are tenants but they are also landlords- this shows that the old buy-to-let model may be shifting into something new, especially for first-time buyers,” he said.

When looking at the old argument of buy or rent; Botha said that the conditions are ripe for property investment.

“Banks are clamouring to grant bonds, even sometimes of more than 100%; the repo rate is the lowest it’s been in years (ideal for first-time buyers opting for a fixed interest rate) and slow property price growth has driven developers to be very price sensitive and have competitive pricing,” he said.

Property data shows that over the last 3 years (2017-2019), single females are the highest proportion of property buyers in the country, investing in properties with a median price of R800,000 in secure estate developments.

Statistically, the rate of sale in these developments is 40% higher than other developments with an average price point of R1 million, Botha noted.

“This gives greater confidence to property developers to align their price points to market activity and ensure their marketing is well-placed and strategic to capture the right attention,” he said.

“The consistency of the data findings is key here, and shows that this trend has continued over the last 3 years, and should therefore continue.”


Read: Pay your bond but lose your property – South Africa’s big land expropriation problem

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Where South Africa’s property market could end up in 2020