YOUR REAL ESTATE FORECAST FOR 2020
PACK AN UMBRELLA
When it comes to heading out into the property market in 2020, the predictions may prove to be as trustworthy as the weather forecast, but while there are indeed rays of sunshine falling on certain areas, the storm clouds gathered on the horizon cannot be avoided.
When legislation changes that require the rewriting of sections of the Constitution (2019’s Draft Expropriation Bill that aims to allow the expropriation of land without compensation) are overshadowed by the greater economic state of the country, you should know something has gone terribly wrong. On the 1st of November 2019 Moody’s, the international credit rating agency, lowered South Africa’s credit rating from stable to negative, giving the country an 18-month window to improve its economic state before the company downgrades South Africa to junk status. This marks a historic turn in South Africa’s economy, with Moody’s having never rated South Africa below investment grade before.
In 2017 both S&P Global and Fitch Ratings lowered SA’s credit rating to “junk status”, indicating that our government’s ability to honour debt commitments was looking dire. SA’s national debt has been a worrying concern, with the country constantly attempting to bail out companies such as Eskom and South African Airways that continue to plummet further into arrears. Coupled with the country’s political instability (note that neither of SA’s previous presidents kept their stations until the end of their terms), this laid the foundation for the credit rating agencies’ decisions. While Moody’s did downgrade its rating of SA in 2017, never before have they been this close to lowering our credit rating to non-investment grade.
If this is to happen, the country’s current economic state may worsen even more as international investors pull out, leaving the future and stability of the South African economy largely up in the air. Across the board “junk status” will mean higher debt servicing costs for the government, which will, in turn, result in higher debt servicing costs for the country’s citizens, increasing interest rates, for instance. With the Reserve Bank recently announcing that the interest rate’s would remain constant and not be cut back despite the low inflation rate to allow for economic respite, the year to come may prove to be in for some thundershowers.
Amidst these irrefutably dark times in the country’s economy, the daylight does seem to be breaking through in certain parts of the real estate market. The year saw banks improving home loans with increasing regularity, going from 26% of loan applications being approved in 2010, to 70% last year, and mortgage advances have been growing faster than the average house price growth in South Africa since the beginning of 2019. Due to this, the loan to purchase price ratio is currently the lowest it has been since 2008, meaning the deposit buyers have to put down on mortgages is reasonably small. While this is most certainly a promising development for buyers and prospective investors, the reason for the change may not be a positive one for sellers.
With the increasing economic strain, property sellers have had to lower their selling prices in many cases to get their property off the market. This occurrence has hit the Western Cape real estate market especially hard, as more and more people look at renting property, forcing property prices to fall to accommodate the few who can still afford to purchase a home. This has caused the percentage of buy-to-let properties to rise around the coast, with Cape Town and Durban’s buy-to-let property sales consisting of almost 10% of the market in 2019 first quarter. In Gauteng, however, the buy-to-let market is declining, with only 5% of the market consisting of buy-to-let properties in the second quarter of the year. Johannesburg and Pretoria’s real estate markets have even been outperformed by the drought-afflicted Western Cape.
While property prices have dropped almost uniformly in coastal areas, with a drop of 5% along the Atlantic Seaboard, properties in the Cape Winelands and along the Garden Route seem to be holding out against the economic strain, with property prices in Stellenbosch increasing by double digit figures from 2018.
A major contributing factor to both the turmoil in the market and the country’s credit rating is the tumultuous political climate that came with the end of former president Jacob Zuma’s term, ultimately culminating in his resignation in February of 2018. With the general elections in May 2019 a stability has been brought back to the country, bringing about stability in the property market as well.
Although David Maynier of the Democratic Alliance commented on the president’s lack of direction in 2018, President Cyril Ramaphosa seems to have more than made up for it since his official election. Addressing one of the major issues that cause the property market to stagnate, the president has commented on reducing the public’s spending while the finance minister also pointed out that a change in ideology needs to be brought about that will focus less on short-term wealth but continuous economic growth.
President Cyril Ramaphosa has already signed two major Acts into legislation that will have a great impact on the real estate industry. The first of these is the Property Practitioner’s Act 22 of 2019, which will regulate the inner workings of the real estate market, creating a safer and more streamlined market for both property practitioners and tenants alike. Tenants will benefit from additional safeguards that will, amongst others, regulate access to the rented property.
This is an especially important Act in light of the rising popularity of sectional title living. With more and more renters and buyers seeking sectional titles that accommodate their lifestyles and modern living, this Act will give tenants peace of mind and property practitioners more efficient processes to rely on.
The second Act may prove to be nothing short of revolutionary for South Africa. Taking the real estate market and property ownership into the digital age, the Electronic Deeds Registration System Act 19 of 2019 will introduce an online platform for deed registration, offering users access to their deeds and the registration process, anywhere, anytime. The slow and arduous process that has become synonymous with the registration and access of deeds at the specific Deeds Office could become a thing of the past.
With political instability and the possible economic crisis looming on the horizon, not to mention the record-breaking drought that is crippling South Africa’s agriculture, the forecast for the property market in 2020 seems to be for thunderstorms. But with the active measures being taken by the government to remedy the current state of the country’s economy, the clouds could clear away in the late afternoon. So be sure to carry an umbrella, just in case.