Despite an economically tumultuous 2019, followed by pandemic-plagued 2020, home buyers have reason to be optimistic about a currently resurgent market.
- Despite an economically and politically tumultuous 2019, followed by a pandemic-plagued 2020, the signs point to a resurgent SA property market, with increased demand for larger houses in particular.
- Pent-up demand, and a desire for more comfortable work-from-home environments, have contributed to this unexpected turn of events.
- Interest cuts early in 2020 have also contributed by lowering the cost of monthly repayments.
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. In fact signs indicate that the SA property market is experiencing a resurgence despite the economic difficulties and pandemic.
South African property market: Resurgent demand despite pandemic
Not only is there a renewed demand for properties, but the rate of demand for large houses, as opposed to smaller houses in the cities, has increased as well.
As a result, property prices have increased by 1.4% up to July, according to FNB data, when they were initially predicted to fall by 5% and 14.5%.
Factors that have contributed to this unexpected turn of events include:
- Pent-up demand: Although it was only expected to come into play later in the year, the pent-up demand during the lockdown has been unleashed sooner than expected, with prospective home buyers seemingly rushing out of the gates to purchase new homes.
- Work-from-home world: The way of work in a world beset by pandemic has caused many people to reassess their home life. The demand for larger homes is believed to have its roots in the desire for a more comfortable working environment, as more people are forced to work from home.
The role of the 2020 interest rate cuts
Another positive development that has contributed to resurgent demand are the interest rate cuts that kicked off the first half of 2020.
In response to the coronavirus, and the damage it was 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 and it was further cut by 0.5% in July. This means five rate cuts within the space of seven months, taking the prime rate to 7%, the lowest level in over 50 years.
So on a bond of, say, R1 000 000, the repayment amount will have dropped from R9 650 at the beginning of January to R7 753 after the rate cut in July 2020.
The lower mortgage rates have naturally created an environment for property investment, with prospective home buyers looking to seize the opportunity before mortgage rates rise again.
More predictions for the 2020 property market
In addition to resurgent demand, here are some more reasons to be optimistic about the future of the South African property market.
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-let properties.
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.
Considering an investment?
If you’re looking to take advantage of a resurgent property market, as well as the interest rate cuts that have contributed to it; bear in mind that ooba Home Loans offer a range of tools that make the process easier. Start with our bond calculator; then use our free, online prequalification tool, the ooba Bond Indicator, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.