Unemployment worries will keep the lid on home prices this year
The residential property market is expected to start losing some of its 2020 momentum soon, even though inflation is likely to remain depressed by a number of factors and the Reserve Bank is likely to keep interest rates low until at least 2022.
That’s the word from Berry Everitt, CEO of the Chas Everitt International property group, who says the biggest market obstacle in 2021 will be a predicted increase in SA’s already very high unemployment rate in the wake of the Covid-19 pandemic. “Especially worrying is the unusually high number of the middle- to upper-income consumers who are usually better insulated against economic shocks but are currently struggling to make ends meet as a result of pandemic-related retrenchments and company closures.
“The banks are of course aware of this and already tightening up on their home loan credit criteria in response. So even though we expect demand to remain strong, especially at the lower end of the market, we also foresee that bond approval rates will decline overall, and that demand will translate into fewer actual sales this year.”
He says that as expected, the Covid-19 pandemic has caused extreme and ongoing volatility in world stock markets and major upheavals in the travel, tourism, finance and commercial property sectors – all of which has been positive for the residential property market.
“Many affluent investors made an early move last year from equities to luxury bricks-and-mortar which, along with gold and other hard assets, is regarded as a safe haven in turbulent times, and offers many opportunities for tax relief.
“At the same time, and especially in SA, consumers reacted positively to the steep interest rate cuts introduced to try to stimulate the economy – or at least keep the wheels turning – in the face of the pandemic. The banks also proved very keen to grant new home loans and literally thousands of long-time tenants took the opportunity to become first-time homeowners – with the result that many real estate companies achieved record sales in the second half of 2020.
“The strength of this trend can also be seen in the growth of SA’s average home price, which ended the year only mildly down on 2019, just as we had predicted despite the country being in lockdown during the second quarter.”
However, says Everitt, supply and demand overall are expected to remain very much in balance this year – even though they may show quite sharp local fluctuations from time to time – and what this means is that there is unlikely to be any significant increase in home prices.
“The decline in the number of SA home owners who are planning to emigrate is a positive for the market – and especially for the smaller towns and coastal areas that are seeing a surge of executive semigration as the remote-working trend gains ground, and a corresponding decline in housing inventory.
“And of course the Rand is still at attractive levels for foreign buyers of SA property when compared to dollars, pounds or euros, which will help to bolster the luxury market once there are fewer travel restrictions between countries and continents.
“But at the same time, we expect the number of distressed sellers to increase this year and bring more inventory to the market, along with landlords who have been struggling for months with non-paying tenants and have now decided to offload some of their rental properties.”
Consequently, he says, there is absolutely no sense in home sellers taking their homes off the market now in the hope of selling at a higher price in a few months’ time. “The fact is that the macro-economic factors are more than likely to suppress the current wave of sales, and to put the damper on price increases going forward, so those property owners who need to sell now, for whatever reason, should really attempt to do so as soon as possible.”