The Covid-19 pandemic has negatively affected many sectors of the local economy. The property market has however been thriving on, among others, low interest rates, home-schooling and remote learning.
The Covid-19 pandemic has brought about many changes to South African lives. The move to homeschooling and working from home, has caused a significant increase in the demand for residential properties, according to Renier Swart, the group sales director of Val de Vie, a luxury estate in Paarl.
Cheaper debt boosting property market
In February 2020, before the start of lockdown regulations in South Africa, the country’s prime interest rate was 9.75%, according to tradingeconomics.co.za. By July last year, this had been lowered to 7%, where it has since remained. This is the lowest it has been in decades, according to data from tradingeconomics.co.za.
The prolonged favourable interest rates, has contributed to the increased demand for local residential property, according to Bernice Houy, director and home loan specialist at Artemis Home Loans.
The prime interest rate determines how much a buyer will pay back to the bank, over and above the cost of the house, when utilising a home loan in order to purchase a house, according to Houy.
“The aim for a buyer is always to get the lowest interest rate possible from the banks,” says Houy.
With the prime interest at record lows, the total value of the home loan is reduced, and therefore monthly repayments to the bank are reduced, says Houy. This helps more potential buyers meet the affordability criteria as set by the banks, she adds.
Houy finds that those who are financially capable are able to purchase properties and benefit from the lower interest rates.
“However, there are more people than before who are unable to purchase property,” says Houy, indicating that Covid-related problems, such as job loss and pay cuts have brought this on.
There have also been various other factors resulting in properties being sold at market value or at below market value, says Houy. This is opposed to lessors still having their investment property and tenants should they not have been affected by the pandemic.
“We experienced property owners being unable to financially maintain their properties whilst not receiving rental income,” explains Houy.
These property owners were therefore forced to sell their properties in order to alleviate the constant outpour of funds, says Houy.
“In needing to do a quick sale they invariably sold below market value,” explains Houy.
Nevertheless, Houy believes that it is worth investing in property now, and that it is always worth investing in.
“This is also a great time for first-time buyers to take advantage of the lower interest rates,” she adds.
Bernice Houy, the director and home loan specialist at Artemis Home Loans says that now is a good time for first-time buyers to take advantage of the low interest rates. PHOTO: Tina Ddamulira
Local student rental market
While Covid-19 resulted in many students learning online last year, student accommodation in Stellenbosch did not necessarily initially experience much of a decline in the number of units rented out. This is according to Ina Weideman, the portfolio manager at 95 on Bird, a student accommodation in Stellenbosch.
The reason why occupancy remained high was that people had already entered into annual contracts, said Weideman.
“It would have been costly to get out of those contracts,” she adds.
In some instances, however, some student tenants have requested to opt out of contracts before they have ended.
“This year there have been unpredictable changes in the way that courses are taught (online or in-person) throughout the year due to the changes in the lockdown levels,” says a source involved in student rentals in Cape Town.
“Whenever we go into level four or level three lockdown levels, [students] feel that they don’t need the accommodation as much. And they think it’s an excuse for them to be able to cancel halfway through the lease,” says the source.
The unpredictable changes in the way that courses are taught (online or in-person) throughout the year, due to the changes in the lockdown levels, has caused students in Cape Town to request cancelling their leases before they end. PHOTO: Tina Ddamulira
Commercial properties
This has not been the case at Technopark, which rents out offices to businesses in Stellenbosch, according to Ernst Wolfaardt, the chairman of Technopark SRA and the special projects engineer for Capitec’s properties division which has its offices at Technopark.
“Less than 15% of the space that Technopark has to offer is unused,” says Wolfaardt. In previous years 10% of the space at Technopark was unused, he adds.
Part of the reason for this high level of occupancy is the length of the leases that people are bound by, according to Wolfaardt.
“They are typically into three or five or seven year leases…and they cannot get out of their leases very quickly,” says Wolfaardt. They do not anticipate major changes or exits from leases when the lease period expires.
People remain unsure about the future of working from home and therefore are reluctant to give up the office space completely, says Wolfaardt.
“We do believe that people will return to the office,” he adds
Many businesses in Stellenbosch continue to rent offices from Technopark due to the uncertainty about the future of working from home. Thus they are reluctant to completely give up their office space. This is according to Ernst Wolfaart, the chairman of Technopark SRA and the special projects manager for Capitec’s properties division which has its offices at Technopark. PHOTO: Nicola Spingies
New homeowners
First-time buyers have accounted for a growing percentage of home buyers according to ooba, a mortgage originator, since late-2007 when the data series began. This is according to Sandra Gordon who is Pam Golding Properties’ senior research analyst.
“This reached a record high of 56.2% in May 2020, reflecting the positive impact of the aggressive interest rate cuts in response to the pandemic and lockdown,” she says in written reply to MatieMedia.
Demographics play a key role in determining the demand for property, says Gordon. South Africa’s population is young, with about two-thirds of the current population under the age of 36 years. This, according to data from ooba, is also the average age of the first-time buyer.
“This means that there is a large, and growing, number of young people waiting to enter the housing market, providing a solid underpinning for the residential property market,” says Gordon.
There has also been a high demand, by first-time buyers, for homes in the price band up to R1.8 million, Samuel Seeff, the chairman of the Seeff Property Group, told MatieMedia in written correspondence.
Last year’s interest rate cuts “greatly reduced the monthly repayment on home loans, hence the boom in buying by first-time buyers,” explains Seeff. A decline in the average time that homes spend on the market is an indicator of the market strengthening, according to an article by finweek.
Furthermore, the cheaper borrowing costs has meant that sellers who were able to sell their property to the first-time buyers are able to purchase a bigger home or purchase a home in a better suburb, explains Seeff.
“[This] is driving the higher activity in the R3m to R4m price range,” according to Seeff.
Many first-time homeowners have purchased sectional title units because of the security it offers and the low maintenance as the building and grounds are usually maintained by the body corporate, says Seeff.
“[This] is a significant advantage for people who do not want to be burdened by maintenance and security matters,” according to Seeff.