EI in association with Rode & Associates just completed our 3-part virtual property conference webinar series . We took a deep dive forecast into the future of the South African economy and the commercial and residential property markets . The overall sentiment reiterates concerns about employment and the economy in general .

Senior economist at FNB , Siphamandla Mkhwanazi shared the latest data from the FNB House Price Index ( HPI ). It shows that annual house price growth flatlined in October at 2.6 % year-on-year . Despite the mild reflation in recent months , the overall residential property price growth remains below inflation , as has been the case for most of the last decade .

“ Lower priced properties are performing better , with the bottom 20 % of price distribution ( values below R500k , using FNB transaction data ) averaging at 11.4 % year-on-year in 3Q20 . On the opposite end the spectrum , the top 20 % (> R1.9m ) averaged 0.7 % Y-O-Y in the same period ,” Mkhwanazi said .

Some general observations from FNB indicate that the pandemic has not had as chilling an effect as initially expected . Property price growth has heightened and volumes reached multi-year highs , particularly in middle-priced segments . There has been improved mortgage affordability incentivising renters to buy . According to Mkhwanazi , this has contributed to the rising flat vacancies and , subsequently , the low rental inflation . He further says that the overall impact of the pandemic is more visible in the rental market , relative to the home buying market .

However , as lenders apply caution amid an uncertain economic outlook , approvals lag , only outpacing 2019 levels by approximately 1.5 % year-to date . In FNB ’ s view , activity is shored up by the low interest rates , the attractive market pricing , lower transfer duties and the changing housing needs , due to the pandemic .

Furthermore , liquidity in the market has remained relatively intact . Approval rates are slowly recovering from their recent lows in May / June during the height of lockdown ( and subsequently , risk cuts from lenders ) and have now cleared the long-term average . Loanto-value ratios ( estimated from Deeds data ) also continue to tick up , mainly driven by market forces . First-time buyers generally require higher LTVs , but there is also stiff market competition among lenders .

“ With offers to purchase flooding in , October ( 2020 ) has been another outstanding month for Eazi with record sales turnover achieved , being just over 130 % up on our previous best months of August and September ( 2020 ).

Meanwhile , PayProp sees a trend where more tenants are opting for property ownership . With the prime rate at its lowest level in decades ( 7 %), it ’ s understandable that more South African tenants may be considering property ownership . Johette Smuts from PayProp says that although real estate is a much-desired asset , it is important to remember that home ownership is a long-term commitment , often going hand-in-hand with a 20-year mortgage bond that needs to be repaid , while one can safely assume that interest rates will not remain at the current low levels .

“ Good tenants are hard to come by in this economy , and those that meet the banks ’ lending criteria are now using the opportunity to purchase properties at a lower price , due to an over-supply of available sales stock and a lower effective lending rate ,” Smuts explains .

Smuts says the most recent arrears figures are looking marginally more positive than those from the height of the lockdown period .

“ The average size of arrears relative to rent increased substantially from March to June this year , but then stabilised over the last few months . For June through August , the average arrears amount for tenants was at 105 % of rent , or just over one month ’ s rent . Before lockdown , this figure was below 80 %,” says Smuts .

The rental property landscape has changed significantly over the past six months , and Smuts says that as with many other industries , some of these changes are here to stay . Property professionals can win the race to attract the safest remaining tenants by adapting to their changing needs and understanding their risk profiles .

Stay safe and successful investing .

NEALE PETERSEN EDITOR-IN-CHIEF

EDITORIAL JOHANN RUPERT VIEW

Many property buyers and investors are adopting divergent strategies amid the uncertainty . We have seen unemployment rise , businesses close , but we also see others showing success . Why do some fail and others achieve ? Demonstrating pent-up demand in the last quarter concluding in December 2020 , CEO of fixed-fee agency , Eazi Real Estate , Richard Day says the residential property market continues to gain momentum . He says in some areas it appears to be substantially busier - even when compared to peaks in previous years .

TOM CHEESEWRIGHT

“ Location matters less and less . What matters is your ability to add value and communicate that value ”

SA Real Estate Investor Magazine NOVEMBER / DECEMBER 2020 3