BUSINESS MAVERICK

A tale of two real estate markets: Housing gets a pandemic lift, while rental market is waylaid

By Ed Stoddard 19 January 2021

(Photo: Rawpixel)

South Africa’s housing market has displayed surprising resilience in the face of the Covid-19 pandemic and the economically crippling lockdown measures imposed to contain it, according to FNB’s latest property barometer. The rental market, however, is a different tale.

If there is a For Sale sign in front of your house in South Africa right now, chances are it won’t take long to sell. But if you are a landlord with rental properties, you may be battling to find tenants. And don’t wait too long to put up that For Sale sign, because a supply glut may be in the offing.

According to FNB’s latest property barometer, released on Tuesday, January 19, “… industry-wide data continues to show robust home-buying activity. In fact, 2020 is set to register the highest volume of mortgage approvals in over a decade. This is despite relative caution from lenders: approval rates were lower in 2020 compared to 2019.”

A number of factors stemming from the pandemic are behind this trend. Among them FNB notes lower interest rates, which were slashed by 300 basis points in 2020, bringing the prime rate to 7%. Transfer duties are also lower, while the pandemic has changed housing needs and forced the financial hand of some property owners.

“Downscaling due to financial pressure is fast becoming the most prominent reason for disposing of property in SA, tied with downscaling due to lifestyle changes at 22%. Historically, downscaling due to lifestyle changes accounts for the largest proportion of disposals, and usually oscillates at around 22% of the market,” FNB said. Corporates are also disposing of property to get much-needed cash on to their balance sheets.

Remote working is also probably playing a role as mostly white-collar employees can set up home offices, dispensing with the need to be within commuting distance of major hubs such as Sandton.

FNB’s house price index rose by 3.5% in December from 3.3% in November. So, prices are on the upswing, though they are hardly on the boil and the trend is in line with the overall consumer inflation rate, which was 3.2% in November. Still, the housing situation, with home loan approvals at their highest volumes in more than a decade, stands in sharp contrast to new car sales, which fell to a 20-year low in 2020 despite the incentive of significantly lower interest rates.

This, in turn, appears to have had a negative impact on the rental market. 

“The improved affordability made buying property more attractive than renting. In part, this explains the rising vacancy rates and subdued rental escalations, as landlords struggle to hold on to their good-quality tenants. Another explanation is that job losses were more prevalent in low-paying occupations and for those employed on a non-permanent basis, who would generally not afford to buy property,” FNB said.

So what is the outlook for 2021? FNB cautions that there could be a potential supply glut in the making. Further job losses, which might include growing numbers of higher-paid workers, would place “significant downward pressure on household incomes, and by extension, market activity and eventually house prices. Lower interest rates will assist, but this will hardly be enough to offset the demand-dampening effect of these job losses.”

Property disposals triggered by financial pressures are on the rise, while a depressed rental market could see landlords opting to sell their properties. This could create a supply glut in the face of diminishing demand. Indeed, FNB expects house prices to decline by around 6% this year. Along with the expected decline in rental prices, that will at least help to contain inflation.

This is clearly a space to watch. DM/BM

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