Young buyers are adding some strength to residential property sales

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Young buyers are adding some strength to residential property sales

By Edward West Time of article published 13m ago

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CAPE TOWN – The unexpected strength of residential property demand this year, despite the pandemic and very weak economy, came mainly from young buyers and fewer homes that came onto the market due to financial pressures, Pam Golding Property Group chief executive Dr Andrew Golding said yesterday.

A recent report by global property group Savills found lockdowns had disrupted the global econonmy, but residential real estate proved to be one of the more resilient sectors, a trend also reflected in South Africa where the residential property market saw “an earlier than expected rebound with momentum continuing,” underpinned by 50-year low interest rates, he said.

He said this was particularly evident in the R700 000 to R3 million price range, with additional encouraging signs of increasing activity at the top end of the market.

While house prices continued to grow this year, on an inflation adjusted basis they remained negative.

In addition, the rent vs purchase equation had shifted to favour buyers, which was having a significant impact on activity in the local housing market. Homeowners around the world had also re-evaluated their lifestyles and their living spaces, he said.

Lightstone data showed that in many countries, a reverse migration was taking place as remote working became a permanent option for many, resulting in an increase in movement to smaller cities and towns where quality of life, family and affordability were highly valued.

Lightstone said in South Africa, the trend was more about a more balanced lifestyle, with home buyers in their late 20s and 30s and early retirees leading the coastal buyers.

Lightstone data to June 2020 showed a sharp drop off in unit sales in South Africa. After averaging 22 000 units a month each year between 2013 and 2015, this slowed to 21 148 in 2016, 20 644 in 2017, 19 003 in 2018 and 17 328 in 2019. In the first half of 2020, just 5178 units were sold.

Nonetheless, activity since June had surprised analysts in terms of its resilience, as did the strength of house price inflation, said Dr Golding.

Despite forecasts suggesting prices would decline by 5-15 percent this year, the Pam Golding Properties Residential Property Index averaged +2.7 percent in the year to November.

Rawson Property Group managing director Tony Clark said several factors contributed to the market’s resilience.

“Not only are property prices subdued thanks to a long period of slow growth, but interest rates are low, and lenders are highly motivated, offering up to 100 percent loans. This has created a climate of affordability – particularly for first-time buyers – that we haven’t seen for many years,” said Clark.

He said the forecast economic contraction of 7.8 percent this year, average medium-term gross domestic product growth of 2.1 percent, and tax increases of R40 billion over four years would eat into house buyers’ incomes, but other conditions were likely to remain in buyers’ favour.

“We’re not expecting dramatic price growth for some time. Interest rates will likely start climbing from mid-2021, but at a conservative rate that shouldn’t cause problems for buyers unless they’ve bought at the limit of their affordability,” he said.

There might also be a few new positive influences. “The R2.2bn allocated to social housing and R96bn for student housing will not only be a powerful community upliftment initiative, but will boost construction and provide new property investment opportunities,” said Clarke.

Less direct support would be felt from an additional 12 000 MW of new electricity capacity sourced from independent power producers, and the R12.6bn allocated to employment initiatives, he said.

FNB said recently it anticipated a further 25 basis point cut in interest rates early next year, which would see the residential market remain more buoyant than commercial property.

“Home buying is tied to a strong culture of ownership. This is different to the commercial property, where buying vs renting is more about what makes business sense,” the bank said.

“Some higher income households may repurpose homes in order to make them more suitable for work purposes, or alternatively some may ‘buy bigger’. Semigration to coastal regions could receive a mild boost…but we would caution expecting too much movement in such a tough economic and financial environment,” the bank said.

THE unexpected strength of residential property demand this year, despite the pandemic and very weak economy, came mainly from young buyers and fewer homes that came on to the market due to financial pressures, Pam Golding Property Group chief executive Dr Andrew Golding said yesterday.

A recent report by global property group Savills found lockdowns had disrupted the global economy, but residential real estate proved to be one of the more resilient sectors, a trend also reflected in South Africa where the residential property market saw “an earlier than expected rebound with momentum continuing,” underpinned by 50-year-low interest rates, he said.

He said this was particularly evident in the R700 000 to R3 million price range, with additional encouraging signs of increasing activity at the top end of the market.

While house prices continued to grow this year, on an inflation adjusted basis they remained negative.

In addition, the rent versus purchase equation had shifted to favour buyers, which was having a significant impact on activity in the local housing market. Homeowners around the world had also re-evaluated their lifestyles and their living spaces, he said.

Lightstone data showed that in many countries, a reverse migration was taking place as remote working became a permanent option for many, resulting in an increase in movement to smaller cities and towns where quality of life, family and affordability were highly valued.

Lightstone said in South Africa, the trend was more about a more balanced lifestyle, with home buyers in their late twenties and thirties and early retirees leading the coastal buyers.

Lightstone data to June 2020 showed a sharp drop off in unit sales in South Africa. After averaging 22 000 units a month each year between 2013 and 2015, this slowed to 21 148 in 2016, 20 644 in 2017, 19 003 in 2018 and 17 328 in 2019. In the first half of 2020, just 5 178 units were sold.

Nonetheless, activity since June had surprised analysts in terms of its resilience, as did the strength of house price inflation, said Dr Golding.

Despite forecasts suggesting prices would decline by 5-15 percent this year, the Pam Golding Properties Residential Property Index averaged +2.7 percent in the year to November.

Rawson Property Group managing director Tony Clark said several factors contributed to the market’s resilience.

“Not only are property prices subdued thanks to a long period of slow growth, but interest rates are low, and lenders are highly motivated, offering up to 100 percent loans. This has created a climate of affordability – particularly for first-time buyers – that we haven’t seen for many years,” said Clark.

He said the forecast economic contraction of 7.8 percent this year, average medium-term gross domestic product growth of 2.1 percent, and tax increases of R40 billion over four years would eat into house buyers’ incomes, but other conditions were likely to remain in buyers’ favour.

“We’re not expecting dramatic price growth for some time. Interest rates will likely start climbing from mid-2021, but at a conservative rate that shouldn’t cause problems for buyers unless they’ve bought at the limit of their affordability,” he said.

There might also be a few new positive influences. “The R2.2bn allocated to social housing and R96bn for student housing will not only be a powerful community upliftment initiative, but will boost construction and provide new property investment opportunities,” said Clarke.

Less direct support would be felt from an additional 12 000MW of new electricity capacity sourced from independent power producers, and the R12.6bn allocated to employment initiatives, he said.

FNB said recently that it anticipated a further 25 basis point cut in interest rates early next year, which would see the residential market remain more buoyant than commercial property.

“Home buying is tied to a strong culture of ownership. This is different to the commercial property, where buying vs renting is more about what makes business sense,” the bank said.

“Some higher income households may repurpose homes, or alternatively some may ‘buy bigger’. Semigration to coastal regions could receive a mild boost … but we would caution expecting too much movement in such a tough environment,” the bank said.

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