HEIBERG ESTATES NEWSLETTER: MARCH 2022
Three specific events that happened in the past 30+ days, already shows its impact on the SA Property Market: the presentation of the 2022 National Budget, yet another interest rate increase by the South African Reserve Bank (SARB) and Russia’s invasion of Ukraine.
Looking at the first point above where there was all-round acknowledgement that it was a carefully balanced budget presented by our Finance Minister, Enoch Godongwana, which demonstrated strong fiscal leadership. The fact that the tax burden was not increased was widely welcomed, especially by individuals and businesses still struggling to cope with the huge covid-related financial burdens and economic uncertainties still playing itself out over a wide spectrum. Especially looking at our alarmingly and increasing unemployment rate that affects people’s ability to invest in property. We all know that positive sentiment and economic confidence/growth are of the utmost importance to local- as well as foreign investment. This in order to stimulate sustainable job creation, disposable income and affordability, also to enhance property market activity across the board. Our Commercial Property Sector should benefit by the decision to lower corporate tax by 1% and the government’s pledge to underwrite small business loans whilst also promoting Private Public Partnerships.
Unfortunately, much of the above good work done and positive sentiment created, was short-lived and came under a dark cloud when the SARB announcing yet another 25 basic point interest rate hike – the 3rd increases in the current cycle since November 2021 in order to combat fast increasing inflation – bring the cumulative 75 points rise of the prime lending rate up to 7.75%. The interest rate is on its way to soon reach the SARB 3-6% CPI Inflation target range where it accelerated from 2.9% year-on-year in February 2021 to 5.7% by February 2022.
Further shocks are expected resulting from the continuing worldwide recessionary economic/inflation mushroom effect ignited by the war in Ukraine, whilst several countries have had no option but also to have had to increase their interest rates in order to combat inflationary pressures over a broad front.
In spite of our still fairly resilient SA Property Market, upwards pressure taking the above into account, is expected to continue on our capitalization rates, commercial vacancy rates, downward pressure on property prices and monthly rental payments, whilst increasing operating- and municipal costs, will also have a definite negative influence on our property market across the board.
Some of the latest interesting facts and statistics, as follows:
- Lightstone’s latest 2022 expectation for Residential Property price increases, is between 3.4% and 5.1%.
- According to a recent published FNB Report, rising capitalization rates in both Office- and Retail Property Sectors, are expected to sustain pressure on valuations. Where vacancy rates in the Office Market is still on the increase, inevitably downwards pressure on prices will be continued. Both sectors have still not achieved a rating higher than their pre-Covid 19 lockdown reading from the 1st quarter 2020, reflecting continued financially pressured and challenged consumers.
- A further FNB report states that a 1st quarter survey clearly indicated that the Industrial Property Market Sales Activity recorded its highest activity since 2019, especially since there is a growing demand for logistics and warehousing due to increasing online retail activities – not to forget the big role Covid played in this state of affairs.
- The rising interest rate cycle expected to continue on a repetitive basis for the next few quarters, will also have a negative impact on residential prices and especially on sectional title property developments where first-time buyers’ affordability and appetite to buy property, will be coming under renewed challenges.
- Where affordability in the present market once again become a major player in the lower to medium price ranges, we expect an increase in demand for rental properties, especially since there are so many unknown factors leading to people taking a rather wait-and-see stance till stability returns in global and local markets. This leading to moderate increases in monthly rental amounts due to the growing demand.
- Leadhome data recently released, shows that properties in Pretoria took an average of 44 days to sell in 2021, down from 131 days in 2020. In comparison in Durban, it took 49 days (down from 119 days in 2020) and in Johannesburg 54 days (down from 86 in 2020). Cape Town benefitted from semigration from Gauteng to the coast where the average selling days to sell, dropped from 105 days to 77.
- Regarding building activities, optimistic growth in plans passed for approval, points to a return to positive growth in building completions expected for 2022, although the latest spate of events as pointed out above, will inevitably have a dampening effect as the year progresses and the ripple effect becomes evident in especially escalating prices in the building industry as well as amongst consumers with a dampening effect on affordability and demand.
- The m² of total industrial, retail and office space building plans approved, increased by 105.79% in January 2022 – a further increase of 61.87% year-on-year in December 2021. The January 2022 level of plans passed, was still -42.5% lower on the January 2020 level.
- Interesting to note that our beloved country is globally in the fourth place for the most affordable property looking at price/m², after Turkey, the USA and Mexico. A report published by Compare the market from a survey done in 38 leading countries as the most expensive property per m², are the following countries: Japan, Switzerland, Luxemburg, Israel, and South Korea.
- In another interesting research report published by Knight Frank in its “The Wealth Report 2022”, R15 million will buy you 220m² prime real estate in South Africa, ten times the size of what you could afford for the same price in Hong Kong, whilst in Monaco, R15m will only buy you 15m² if prime real estate!
- On the rental side which is expected to take an upturn due to the latest spate of interest rate increases with more to follow, our estimated national average rental amount per month is just under R13 000 but with demand once again gaining momentum, this average could increase gradually towards the end of the year as affordability becomes a big issue for the lower- to medium income groups.
It is never too late – nor to early – to invest in Real Estate, which is a world-wide acknowledged appreciating asset and generally perceived as a good hedge against inflationary pressures. But also building wealth as well as improve well-being. Our advice to our much-cherished clients -especially with the dark further rising interest rate cloud looming – is to pay off any outstanding debts as soon as you can. Especially since another three to four .25 basic point interest rate increases are indeed expected in the next 12 months to come. We all know that residential property is more prone to interest rate movements where affordability in especially the lower price ranges becoming under pressure, whilst commercial property will increasingly become more economically challenged.
Economic challenges on a broad front are expected for the remainder of this year due to our much higher than expected inflation rate with recent huge price increases in fuel-, food-, electricity- and other basic monthly costs, contributing to this state of affairs. Not to ignore the worldwide impact of the war in Ukraine which also is contributing to a worldwide increase in inflation and interest rates, causing ripple effects everywhere.
At this stage and with the continuation of the conflict and the magnitude of the Ukrainian war, it is too uncertain/early to predict what the long-term toll it will take on property prices. What we do expect is upwards pressure on local property capitalisation rates, downwards pressure on property prices coupled with again probable increasing vacancy rates due to major global recessionary pressures and inflationary impacts across the board.
We are very happy and grateful to report back to you that in spite of all the above referred to challenges, Heiberg Estate sales are gaining momentum. But to such an extent that we are experiencing a severe shortage of PROPERTIES FOR SALE / TO RENT in all our areas of specialisation in Pretoria’s Old East! May we PLEASE ask for your referrals or if you just want us to come and do a free property assessment without ANY obligations, kindly contact us soon! Also visit our website: www.heibergestates.com or merely put your camera on our QR Code and click:
Our Heiberg Estate Team remains to be at your service on a 24/ standby basis – just call us any time on 012 362 4628 / 083 654 3773.
May we all at Heiberg Estates wish you a blessed Easter time.
Bambie & Heiberg Estates Team