During 2020 and 2021, interest rates reached a new record-low, which gave new home buyers an opportunity to purchase their first home. But since then, the market has shifted and there's a lot of uncertainty. In this article, we draw from the knowledge of industry experts to help you navigate the emerging real estate trends in in South Africa's Growing Cities.
Let's start with some good news, shall we? The revised interest rate of 10.5% is still one of the best rates from over the past 25 years (phew, right?) – even after six successive interest rate hikes in 2022!
That sounds great, but according to Grant Smee, Managing Director of Only Realty Property Group, it still had a profound effect on the market.
“While 2020 and 2021 gave rise to the first-time homebuyer, who now had the opportunity to invest in property due to record-low interest rates, a quick succession of rate hikes in 2022 had a dampening effect on both first-time homebuyers and the middle-income earner at large.”
One of the most significant effects of the interest rate increase has been on affordability. The higher interest rates have led to an increase in monthly mortgage payments for those who have already purchased a home and the effect thereof could potentially put off first-time buyers who have yet to enter the market.
So, despite the setbacks of 2022, is the current real estate market still buyer-friendly?
While there is a healthy demand for property, even with economic uncertainty moving forward into 2023, the lending environment is still good according to Paul Stevens, CEO of Just Property.
“With interest rates not being excessively high, banks still aggressively loaning up to 110% of the property’s value to the right buyers.”
This positive environment for buyers’ has also been fueled by the fact that new developments can be purchased with no transfer costs, offering buyers the lowest acquisition cost. There is an excellent opportunity to potential save thousands when buying into high-quality developments.
But even with all these positive signs in the market, it's still unclear where this year will take us.
“Whether 2023 will be a buyers’ market or a seller’s market remains an ongoing topic of debate,” comments Smee. “However, when analysing the data, it’s clear that this sentiment varies across different pockets of South Africa.”
Stevens has noticed the same trend on Just Property and notes that “whether the market will swing in favour of buyers or sellers depends very much on local conditions – there is no “one size fits all” answer. Looking at inland municipalities, Ekurhuleni has the highest property inflation rate, and Nelson Mandela Bay tops the coastal metros.”
Knowing where to invest in terms of inland or coastal real estate could help buyers make the right decision.
The luxury property market has been responsible for a significant portion of the sector’s growth in 2022. Backing up these claims of favourable leading trends, ooba Home Loans published, “The majority of the bonds (58%) approved in Q3 2022 were for properties of R1.5 million-plus. We speculate that luxury properties (R2.5 million-plus) contributed greatly to this figure.”
The Western Cape bucks national trends, with house prices not dropping due to demand. It firmly remains a seller’s market. Rhys Dyer, CEO of ooba Group confirmed this.
“The appeal of the Western Cape clearly does not lie in the relative affordability of homes but rather in the lifestyle offering, the relative security and the competency of municipal management.”
Another factor propping up the Western Cape market is that it is seen as an investor-friendly city according to Fine and Country’s CEO, John Herbst.
“An investor-friendly, well-run city that can deploy service delivery proactively to its citizens, plus the ability to provide repurposed, lifestyle-friendly accommodation for its under-resourced communities, can become a very desirable place to live."
Residents are looking for structurally solid local authorities and their ability to provide reliable power, water, and infrastructural services. The city’s ability to provide safety and security solutions to its citizens is also a key consideration for buyers.
"Another critical component is a city’s ability to attract highly skilled residents looking to invest and, most importantly, to retain these individuals. The skills and financial strength of a city’s population are one of the strongest predictors of its economic performance – places with a more skilled workforce tend to have higher remuneration and be more productive. This is because high-knowledge businesses tend to invest and create jobs in places where they can recruit the workforce they need.”
It's important to consider the long-term stability of any real estate transaction. How markets react on a local level in times of turmoil will give you a good indication of future trends.
If you're looking for top rated real estate agents in Cape Town, we have them right here.
Simply put, buyers want more bang for their buck. Some areas have seen an increase in the rise of property prices despite registering the lowest average purchase prices in South Africa. These areas also, on average, offer more for buyers – such as space. Ooba's CEO, Rhys Dyer believes this will drive trends in 2023.
“Interestingly, Gauteng South and East Rand is the only major region in which applications from first-time buyers remain consistently above 50%. We anticipate that the demand for such areas will grow in 2023 as buyers plan carefully and flock to areas where they can get the best return on their investment."
New developments were in high demand in 2022, as they offer a home at a lower cost, community living, and security. Another factor is new residential developments (off-plan properties), which have seen a notable surge in demand.
Ooba’s data indicates a 117% increase in approved home loans for new developments year-on-year. “This is largely driven by affordability. The homebuyer pays zero transfer fees, and bond repayments are delayed until construction is complete.”
In addition, property developers are driving this trend.
“Developers are paying close attention to the homebuyer's needs and catering to these through new and exciting developments. Buyers are spoilt for choice and are opting for lock-up-and-go, secure living through off-plan properties.
As you’d expect, this appetite for estate living is on a steady incline as people crave heightened security and a sense of community, and the ever-increasing need for green living is growing. Herbst from Fine and Country agrees.
“South Africa’s growing energy crisis and omnipresent load-shedding aren’t going to disappear anytime soon, forcing consumers and businesses alike to become more self-reliant by investing in eco-friendly sustainable solutions and renewable energy, taking energy efficiency and green solutions into account when purchasing new homes.”
With the country returning to normal after the last few years of national disaster protocol, is semigration in 2023 still a thing?
“Yes,” says Dyer. “While many have returned to their 9-to-5 office job, some are still opting to commute, and some corporates have chosen to continue with the hybrid, flexible working model.”
Semigration will still be appealing for many professionals working remotely, which makes it easier for them to semigrate to Cape Town or the coastal regions of KwaZulu-Natal, such as Ballito and Umhlanga.
Many professionals have already made the move, but according to Charles Edelstein, director of Executive Placements it's becoming a professional requirement.
“Some only need to travel up to Gauteng once a month to interface with clients and would rather have the better lifestyle near the coast on an everyday basis."
With the option for jobs in Cape Town or jobs in Joburg being available as remote roles, sought-after areas for these professionals will include George, Paarl, Mossel Bay and the Northern suburbs of the Western Cape - and more.
Regarding financial pressure on consumers, many will be looking at downscaling spending on daily consumables or finding a new home where the cost of living is lower. This means many will try to relocate to a new remote location, Dyer elaborates.
“Picturesque areas less than two hours away from major metros such as Betty’s Bay and Grayton are becoming strong contenders in the semigration movement. We expect various small towns to make a big impact in our home loan data in 2023."
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