SOUTH AFRICAN PROPERTY MARKET A LIVE FORECAST FOR 2020
Article summary:
• There is reason for optimism, despite an economically and politically tumultuous 2019, followed by the corona pandemic-plagued 2020.
• Interest cuts early in 2020 have lowered the cost of monthly repayments, and made home ownership a more attractive prospect.
• A burgeoning young population is ready to enter the market, providing a ready-made market for buy-to-let investors. In the midst of a tumultuous period for the South African economy, with an economically and politically fraught 2019 followed by the coronavirus pandemic of 2020, South Africans could be forgiven for being generally pessimistic about the future of the economy, and by extension the property market. But there is a reason for optimism. Here, we discuss some factors that will play a significant role in the 2020 South African property market.
The South African property market in 2020: Positive prospects despite pandemic
The first thing to take into account is that you can buy a house during the corona lockdown, due to the following convenient ‘stay-at-home’ aspects of the home-buying process:
a. Banks are operating during the shutdown.
b. You can shop for houses online, although viewings are now also possible, with the necessary precautions in place.
c. You can use ooba Home Loans’ free, online prequalification tool, the Bond Indicator,to get yourself prequalified. This will provide you with your credit score and enables you to determine what you can afford, along with the size of the home loan you will likely qualify for.
d. Armed with this information, you can then apply online for a home loan with ooba Home Loans. They will send your application to multiple banks on your behalf and compare various deals on offer from all the banks to ensure you get the best interest rate on your loan.
e. You can insert a suspensive condition into the Offer to Purchase, which stipulates that the transfer will only go ahead once the home has passed a physical inspection.
Therefore positive developments in the property market still apply.
Interest rate cuts, and what it means for the property market
One such positive development is the interest rate cuts that kicked off the first half of 2020. In response to the coronavirus, and the damage it is expected to have on the economy, the South African Reserve Bank (SARB) cut the rate by a further 1% on 14 April 2020, after already having cut it by the same amount earlier in March. It was then cut again by 0,5% in May. This means three big rate cuts within the space of three months, taking the prime rate to 7.25%, the lowest level since 1973.
This is good news for homeowners, who will find themselves paying less per month on their bond repayments. For example, on a bond of, say, R1 000 000, your repayment amount will have dropped from R9 650 at the beginning of January to R7 904 after the rate cut on 21 May 2020.
As for home buyers, they will have less difficulty qualifying for a home loan at the lower prime rate, and will receive more favourable interest rates on their loan.
According to Rhys Dyer, CEO of ooba Home Loans:
• “…whilst there will be some challenging times ahead for consumers, we don’t believe that the outlook for property is all doom and gloom”.
• “The prime rate of interest is at the lowest level it has been since 1973, with the prospect of potential further rate cuts”.
• “For first-time homebuyers, the cost of renting versus buying is now swinging very much in favour of buying, especially for properties below R1m, where there is no transfer duty applicable”.
• “There are likely to be attractive deals in the market as sellers who have been holding on for some time to sell their properties are forced to reduce prices, which should bolster demand in the property industry”.
More predictions for the 2020 property market
In addition to the interest rate cuts, other reasons to be optimistic about the market include:
1. A burgeoning market for buy-to-let More millennials are entering the property market, but research from Momentum Corporate shows that only 40% of millennials are interested in home ownership. They’ve been tagged as ‘Generation Rent’ for a reason. This is all good news for landlords, as millennials form a ready-made market for buy-to-letproperties.
2. Buyer’s market We are currently in a buyer’s market, and will remain so throughout 2020 as the market continues to correct for the oversupply of housing, and challenging economic times. When house prices get too high, demand decreases, as people are being priced out of the market. The fact that upmarket areas are hardest hit by the deflation bears this out.
3. Affordable housing While the luxury housing market continues to experience price deflation, the affordable housing market is doing a brisk trade. This may be a result of government support for first-time home buyers, including a subsidy for low and medium-income earners. Furthermore, properties purchased for under R1 000 000 require no transfer duties.