Property Newsletter | June 2022

SA residential property holds firm despite Covid-19

Economic headwinds, rising interest rates and winter chills could slow the market

The SA property market has come through the Covid-19 pandemic better than anticipated, Hayley Ivins-Downes told viewers who attended a recent Nedbank Private Wealth webinar, “South African property market: key factors and trends”.

However, she noted that challenging economic conditions, rising interest rates and the traditionally quieter winter months would help provide some indication of where the market could head in the short to medium term.

Ivins-Downes, Head of Digital at Lightstone Property, was one of three panellists, along with Gemma Moore, Director at De Leeuw Valuers and Vuviswa Ramekgopa, CEO, entrepreneur and non-executive director. The webinar was moderated by Tumisho Grater, Multi-management Investment Analyst at Nedgroup Investments.

There are some 6.9 million registered residential properties in South Africa, valued at R6.4 trillion, of which 81% were Freehold, 12% Sectional Title and 7% Estates.

Ivins-Downes said the residential property market had performed better than expected during the Covid-19 pandemic.

It has been a purchasing phase, and Ivins-Downes said building plans passed recently for flats and townhouses had been the highest in two years.

Nominal house price inflation ended 2021 at around 4%, and Ivins-Downes said the old mantra “location, location, location” still prevailed, and there was strong demand for Estates, where prices were holding firm. House price inflation had been high at 8% in Northern Cape, 7% in the Western Cape, 6% in Gauteng and 5% in KZN.

Transfers were up to 240 000 in 2021, the highest level since 2008. While the pandemic and lockdowns had little effect on the market overall, Ivins-Downes said it did accelerate “semigration” – from 38% to 43% - and a shift from living near to work to moving to a preferred location which might be in another province.

Lightstone defines semigration as a move from one province to another, and the biggest change during the pandemic occurred with those leaving Gauteng and those moving into the Western Cape, with Mossel Bay and Milnerton the primary beneficiaries. The KZN numbers remained static, while Jeffreys Bay was the Eastern Cape’s primary beneficiary of semigration.

Ivins-Downes said those above 46 years of age accounted for the largest age group semigrating, with the 36-39 age group the next largest – perhaps families seeking a different lifestyle. Estate living is the preferred option of semigrants, who Ivins-Downes said make up a small proportion of total transfers.

There are pockets of opportunity, mostly in the coastal areas. Ivins-Downes said Val-de-Vie, a residential estate in the Western Cape, had seen average sales rise from R3.3 million in 2021 to R4.9 million in 2022, while in KZN, sales in Ballito Bay have moved from an average of R1.5 million to R1.9 million.

In Gauteng, Ivins-Downes pointed to Bryanston where, although volumes had dropped, the average sale of units had risen from R1.5 million to R1.8 million. Importantly, Bryanston has a diverse range of property types and price ranges.

Going forward, Ivins-Downes said it would be interesting to see how changing socio-economic conditions would impact on Lightstone’s scenarios for house price inflation – with a high end of 5%, a middle of 3.8% where we think the market will settle, and a lower end of 2.5%.

The rising interest rates might dampen purchases but this would boost the rental market and provide opportunity for the buy-to-let market.

Ivins-Downes said it was too early to assess what impact the recent floods – and the damage to infrastructure – in KZN would have on the province’s housing market.

Most of the property activity in the country was recorded at the lower end, below R800 000, and this was partly a function of activity in smaller towns.

In closing, Ivins-Downes said the residential property market had remained strong throughout the pandemic and property was a good, long-term investment. Although the rising interest rates, fuel prices and electricity shortages would impact consumers, Ivins-Downes said it was still a good time to buy property.