HEIBERG ESTATES NEWSLETTER: JUNE 2020
PROPERTY MARKET STUCK IN A FROSTY BLANKET
Dear Property Partners
The SA Property Market is still caught in a frosty blanket with little movement and not all due to Covid-19. It is a forced reality that our SA Property Market landscape will never be the same again, it has changed forever in more than one way and will change further as we see a new world order arising from this Covid-19 pandemic where all nations are in a struggle to survive (for survival) on so many fronts. It is estimated by the International Monetary Fund that at the end of 2020, 170 countries or even more, will not show any economic growth within this year resulting in (as) the worst recession since the Second World War.
The norm of doing business across all economic spheres is changing on an ongoing basis, predictably on the real estate front where the internet and social media is concerned, the traditional norm and way of doing things is changing to a digital platform, altering the marketing norm to a very big extent – forever. However the facilitating role of the well-seasoned and experienced real estate agent, will for sure remain to be important as the human interaction component of buying a property, can’t be underestimated. For most of us one of the biggest transactions we will ever do, is buying a property. Never to forget that there is a human/emotional component attached to any property, where it is not only a financial decision to buy a house, but also a heart decision to buy a home for your family where happy and lasting memories can be built. The expertise and guidance of a professional estate agent can never be underestimated to assist in finding this perfect home, based on the individual criteria of each buyer that differs from person to person.
The past two to three months visibly had an enormous impact on a broad front on the SA Real Estate Market. Covid-19 is still causing huge chaos where for example: the Pretoria and most other Deeds Offices as well as Municipalities country wide, are still only functioning on basic skeleton staff. Clearance certificates without which transfer can’t commence, have lapsed or have heaped up by the ten thousands and causing severe delays in transfers and havoc under both Sellers as well as Buyers, waiting in a pipeline with very little light at the end of the tunnel at this stage.
On the selling front, it is interesting to note that several financial institutions announced that last month the average bond applications were about 70% lower than May last year. This along with the fact that we have the lowest interest rate (7.25%) for almost 50 years, which under normal circumstances would have been a huge boost for selling activity across all property sectors. Interesting to note that with a previous financial and economic crisis period in 1998, the interest rate was 22% but fortunately our present low interest rate environment, is expected to persist for another year or two!
It is inevitable that the Buyers’ market will continue for the rest of this year where stock exceeds demand by far, prices are not increasing and long not seen price reductions across the board, is presenting amazing property investment opportunities! There is also a growing strong trend due to reduced affordability, of homeowners selling to downscale and buy cheaper, smaller, and more easy manageable properties. The medium- and lower price ranges are by far the most popular at the moment.
We are also experiencing a visible increase in rental enquiries and for those property investors looking for buy-to-let properties in popular areas close to good traffic infrastructures, popular schools, universities, hospitals and shopping centres, excellent returns on investment opportunities presents itself. For many years not seen, it is now possible in many cases where property prices have decreased, to service your monthly bond repayment with your rental income – a scenario last seen during the 1990’s. So why pay off somebody else’s bond if you could well pay off your own bond?!
On the Commercial front where there are increasing empty standing offices and retail space due to affordability that took a huge knock following the Covid-19 lockdown, the scenario is increasingly challenging where property landlords are forced to decrease monthly rental payments or grant payment holidays in order to keep existing tenants.
The SA Reserve Bank predict a negative economic growth of about 7% many economists predict a higher negative growth, and this is an alarming higher decrease than that of the Great Depression in 1931 when the GDP decreased with 6,2%! This scenario will have a further direct negative impact on our shopping centres where rapid rising unemployment and job insecurities, limited affordability, and the general negative and uncertain sentiment amongst our population, will limit day-to-day business activities and monthly turnovers.
We are already picking up a strong and changing mindset in the way that property owners as well as prospective property investors are looking at properties as during the lockdown, they were forced to work from home and had to adapt to a very fast changing working environment. In the process realizing that it is not necessarily a necessity to have a formal and extensive office environment to successfully work from and that cheaper, practical alternatives are to be investigated and are very possible. Work-from-home has become a new and cost-effective way to consider for a big percentage of “traditional” office workers. Due to rapid increasing empty standing office space, the refurbishment of office space into smaller sectional title living units, are on the increase all over our country.
Also online selling and shopping has increased tremendously and already big Shopping Mall Developers are changing their way of thinking and planning, recognising the fact that for the future the more popular way of shopping is likely for the consumer to change to a more practical and easy accessible, localised, smart and smaller shopping centre.
Some interesting facts and statistics, as follows:
• In spite of our alarmingly high negative economic contraction scenario as mentioned of around 7% this year, at least there is a thin silver lining where our inflation rate has come down to 3% – the lowest inflation rate in 15 years whilst our lowest interest rate in almost 50 years, is not expected to be increased in the immediate future;
• In a recently published Private Property survey, 66% of property owners stated a negative impact on rental income due to Covid-19, whilst 33% indicated a total loss – due to these circumstances, 10% of these Landlords indicated that they now consider selling their properties. Only 24% of tenants were in good standing and paying their monthly rental in full;
• According to a recent survey done by Statistics South Africa, 74% of all respondents were limited to do business last month, 84,3% of businesses had lower turn overs last month whilst 72,5% acknowledged that the Covid-19 pandemic is a worse financial crisis than the one experienced during 2009. All these uncertainties contributing to people’s hesitancy to invest in anything and rather opting to rent than to buy and to wait-and-see what the foreseeable future holds in for them;
• With rising unemployment (also due to Covid-19) that presently is estimated at 39,7% when including people that simply gave up in looking for jobs, which brings the total registered unemployed to more than 10 million of our Rainbow Nation, it will inevitably have a further impact on our housing market regarding affordability and sustainability to service monthly bond repayments. We see more stock coming unto the market where under pressure homeowners are unable to keep their properties and the surplus of stock, also puts downwards pressure on house prices.
• On the Construction side more and more contractors are not making it and some of our best established and well-known construction companies, e.g. Group Five, disappeared from the JSE earlier this month. Stefanutti Stocks, WBHO and Murray& Robberts also declared tough times with big restructuring prospects across the board whilst well known Basil Read is in business rescue. Many Developers are forced to shelf development land until things pick up again, hopefully within the next 6 to 12 months!
• With so many factors counting against local but also international property prices with the deepening worldwide recession and the fight against Covid-19, there is a marginal reduction in property prices. But despite everything it is a well-known fact that over the years the sector has always bounced back from a downwards curve and experienced growth. There is a cycle, and yes the existing downwards curve has been deeper than normally due to so many pressures on so many fronts, but it will turn around again as there will always be a demand for properties across the board.
• It is evident that as seen over the past 2 years, the affordable market will remain to be the most popular sector, whilst the luxury property sector is predicted to experience continued price declines for 2020. Interesting to note that sectional title growth regarding both demand and pricing, is expected to outperform freehold properties for the remainder of this year.
There are truly excellent investment opportunities at prices that haven’t been seen in a long time presenting itself with great returns on investments, coupled with our low interest rate environment that is expected to continue for another year or two. So, it is without doubt a perfect time to buy property at prices substantially lower as over the past 2 years! And at affordable prices that haven’t been seen in a long time, now for many prospective buyers that were not previously in a position to buy or to qualify for a bond –will be able to. So, it’s an ideal time for bargain hunting as the status quo will likely not last forever and we all know that real estate is still a sound long term investment.
With our massive debt-to-GDP ratio, our growing budget deficit and declining economic growth rate, the highest ever unemployment rate and most of our resources depleted, now and more than ever before, let’s sincerely hope that our Government will realize it is time to change its ideological and political self-interest driven goals, to a national well-being initiative in order to get our economy, job security, affordability and – also our property market – back on track. Our Rainbow Nation deserves hope and a future!
Please be in touch! Your Heiberg Estates Team on 24/7 standby whether you need to buy or rent Residential or Commercial Properties.
Best and warm regards, stay healthy!
Bambie & Heiberg Estates Team