Simply Onlline obo Strombeck Pieterse Attorneys, Port Elizabeth; Lockdown and lower interest rates are changing South Africa’s property market | Simply Online


Simply Onlline obo Strombeck Pieterse Attorneys, Port Elizabeth; Lockdown and lower interest rates are changing South Africa’s property market


FNB says it has seen a shift in South Africa’s property market as a result of the coronavirus lockdown and interest rates cut from the South African Reserve Bank.

John Loos, property sector strategist at FNB, said that the bank’s data points to a very significant improvement in the appeal of home buying relative to renting.

All other things equal, much of this relative change coming in 2020 is due to sharp SARB rate cutting, he said in a note.

“This improvement in the affordability of home buying relative to renting, not so much due to relative price-rent-ratio change but more due to a sharp drop in the cost of borrowing, appears to have boosted home buying demand strongly while leaving the rental market to continue its weakening path.”

The recent home buying strength has been indicated by many players in the residential property sector, while also having been seen in various responses in the FNB estate agent survey, Loos said.

“From the 2nd quarter to 3rd quarter 2020 surveys, perceived home buying market activity jumped sharply, while the average estimated time of a home on the market prior to sale fell to 10 weeks and 6 days, the lowest average time since the pre-2008 boom years,” he said.

“With the estimated level of first-time buyers at 24% of total buying in an expanding market in the 3rd quarter survey, up from 19% a year prior, it is plausible that the home buying market has taken a portion of tenants away from the rental market of late.”

Rentals falling behind

By comparison, FNB’s data shows that all three rental sub-segments have seen a significant multi-year slowing in rental growth.

In the September 2020 survey, the segment with the weakest rental inflation was the townhouses segment, recording 1.1% year-on-year.

The houses segment was slightly stronger, recording 1.4%, while the most affordable flats segment was the strongest, recording 1.7%.

The key source of pressure on the rental market in recent years, prior to Covid-19 lockdowns, has been the long term stagnation in growth in the South African economy, Loos said.

This source of pressure constrains the finances of existing rental tenants, thereby curtailing their ability to pay rent timeously and absorb rental escalations.

This was reflected in the multi-year trend in the percentage of tenants that are in good standing with their landlords, which declined gradually from a decade high of 85.95% as at the third quarter of 2014, to reach 81.52% by the first quarter of 2020, a multi-year gradual decline that started well prior to the economic shock from the 2020 Covid-19 lockdown.

“Then came the more severe economic dip of the 2nd quarter, caused by the lockdown period, and the percentage of tenants in good standing dropped more sharply to 73.5%.

“We believe that these economy-related pressures have contributed to a greater oversupply of rental space relative to demand, with new household formation slowing and a portion of existing households shutting down, as reflected in a rising residential rental property vacancy rate,” said Loos.

Read: The average house price in South Africa right now – and why a low interest rate is changing the market

*Article sourced from BusinessTech*

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