HEIBERG ESTATES NEWSLETTER: MARCH 2021
Dear Property Partners
Looking back at the first quarter of this year that fled past us, it is evident that the traditional yearly property cycle that presents itself as being quite active in the first quarter versus the second always much quieter second quarter, should repeat itself again this year. In addition, also taking into account the impact of Covid-19 that on a continuous basis, is still putting downwards pressure in both sale volumes as well as property prices, especially in the higher price ranges. The latest estimate shows that more than a million people in addition to those that already lost their jobs as a direct result of Covid-19, can lose their jobs over the next six months – a heart breaking estimate!
We observed positive movement in most price ranges during January and February, we had good show house attendances with all Covid-19 protocols in place, resulting in excellent and successful sales. However, activities during March have been gradually slowing down, and this trend is expected to be continued during the next few winter months. There are excellent property investment opportunities all around but it is clear that it will remain to be a Buyer’s market for the rest of the year. The market remains to be extremely price sensitive and competitive and serious Sellers more than ever before, has to introduce their properties into the market at a market related and realistic price in order to sell their properties successfully. More than ever with so many properties presently on the market up for sale, Buyers can buy by comparison, they have access via the internet to virtually all properties for sale and also historic facts and statistics to assist them in making a well-informed decision as to where best value for money is.
At least our continued low interest rate where once again the Reserve Bank just decided to keep the repo rate unchanged, supports the Real Estate Market and especially in the lower price ranges where a first time Buyer will pay less per month on his bond than to rent the same property. This is a huge stimulus, furthermore, supported by the fact that there are no transfer duties payable by the Purchaser for properties with a selling price of up to R1m. No wonder that this lower priced property bracket forms the foundation where most activities and sales are recorded amongst the lower price margins.
On the rental front we also see an increasing surplus of rental properties due to the fact that despondent Sellers not selling, put their properties up for rental as well and work on a first-come-first-serve basis trying to either sell or rent. This also putting downwards pressure on yearly rental escalations as illustrated by a recent PayProp report, indicating that average rental prices between 2019 and 2020, increased by a national average of a mere 0,1% whilst in some provinces like KZN, it actually decreased by almost 1%! The days that rental prices increased above our inflation rate like e.g., the 7% recorded during 2017, will most probably not be seen soon again whilst the best we can hope for, is that rental price increases will catch up with at least the inflation rate in future. But also, inevitably taking into account the severe downwards impact that the Covid-19 pandemic had on people’s income and lessening affordability! More than 20% of all tenants were behind in rental payments at the end of 2020. The fact that international tourism came to a virtual standstill, also had a very negative impact on the hospitality rental market.
Some of the latest interesting facts and statistics, as follows:
- Despite a continued gradual slowdown in property sale volumes especially in the higher price brackets, fundamental positive sentiment prevails, and recognition given to the fact that properties protect wealth during uncertain times. Interesting to note that the property confidence index improved with 4% the previous quarter. Internationally investments in brick and mortar, is equally recognised as a safe haven in times of trouble.
- Looking at the long term, property values constantly increase despite repetitive cycles where prices do go up and down. The continued Covid-19 impact, is still causing uncertainty under 60% of prospective Buyers, although the Buyers’ market will continue for some time to come, supported by our continued low interest rate and an oversupply of available stock in all price ranges putting downwards pressure on property prices and readily making bargain investments possible – please check our website: www.heibergestates.com
- A recent published FNB Residential Property Barometer reports that data shows a better-than-expected house price growth, demonstrating the decoupling of economic fundamentals and housing market outcomes.
- There is a strong and growing trend of downscaling due to financial pressure which has been increased by the fact that our economy contracted by 7.2% resulting in so many people losing their jobs. SA’s 7.2% GDP slump was amongst the worst in the world and in comparison, the UK slump was -9.9%, Philippines -9.6%, Italy -8.9% France -8.3% and India -8%.
- The construction sector industry took the biggest hit but should have a much better 2021 due in part to government infrastructure spending. Interesting to note that during the 2008 financial global crisis, the SA Economy subsequently shrank by 1,5% as recorded in 2009. It is predicted that our economy’s revival if all goes well, will only grow back to its pre-pandemic levels by 2024.
- Important to note that due to our continued low interest rates, it will remain one of the best times ever to buy property especially in the lower price ranges and this as the most active sales sector, it is expected to continue on this track for the remainder of this year.
- It is noticeable that many property owners initially wanting to sell, are now staying, renovating and rather investing in their existing properties. With the Covid-19 lockdown, these renovations also geared to allow for re-modelling homes for a better and more private and practical work-from-home environment, accommodating changing housing and working needs.
- SA has 17.2million households that increased by 29% over the past 10 years. Tenants increased to 3.7million households renting, a growth of 33% over 10 years, but this trend is not expected to continue due to lessening affordability and increasing job losses due to Covid-19, whilst vacancy rates as mentioned before, are increasing in both the residential- as well as commercial sectors.
- On the Commercial front it is still Industrial Properties and with specific referral to warehouses, doing the best as a result of escalating E-commerce. The office sector is still under enormous pressure with ever increasing vacant standing office space coupled with corporates downscaling, forcing owners/developers to seriously re-think the way of using or doing office park developments.
- We are observing that the financial institutions are pro-actively becoming more cautious in the wake of a potential 3rd Covid-19 wave – this also with increasing job losses and growing concerns about fundamental employment stability across all economic sectors. We observe stricter lending criteria guidelines being instituted that will inevitably further put downwards pressure on our property market. Both in price growth, sales volumes and general property market activities.
One has to remain positive but also realistic where our general economic outlook remains highly uncertain for the remainder of this year and the Covid-19 ripple effect impacting across all borders, will remain to be unpredictable and far-reaching. But still – it is amazing that it is estimated that the SA property sector can contribute as much as R191-billion to our GDP with R46-billion directly to our fiscus – hopefully business recovery and confidence will increase, sustainable job creation and job security increase and collectively contribute for this estimate to become a reality!
Never to forget also that the ability of property not only to maintain its value but also to create wealth over a longer period of time, will remain to be one of the consistent positive drivers in people’s investment decisions with growing confidence in our SA property market. Also, never to forget that once people have property as security, it opens new economic doors for them as well. Property as proven over so many decades, will continue to play an essential role in supporting and growing our battered economy.
Please allow me in conclusion to sincerely thank all of you for your continued support and loyalty to Heiberg Estates over so many years. It is NEVER taken for granted and be assured – it is deeply appreciated. We trust that we shall remain to be your lifelong property partner through dedicated hard work and sharing with you our collective more than 50 years Heiberg Estates Team property experience and expertise. All of us are dedicated to go those ten extra miles to meet your needs and expectations in ensuring that we assist you in making sound and rewarding property decisions and investments for many years to come.
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May the Heiberg Estates Team also make use of this opportunity to wish you – our much-valued clients and colleagues – a very special and blessed Easter. Please keep safe and healthy and know that we all remain to be there for you on a 24/7 basis!
Sincerely & with best wishes
Bambie & Heiberg Estates Team.