Recent reports on property market trends from Q1 2021 have revealed trends in South Africa which are both alarming and inspiring, depending on your position in the market.
“The dynamics of real estate – which can be difficult to navigate at the best of times – have been made ever more complex by a global pandemic, record-low interest rates, and a constrained economy,” says Malusi Mthuli, newly appointed President of the South African Institute of Valuers (SAIV). “These trends may favour you or give you cause for concern, depending on whether you are a buyer, a seller, a landlord, or a tenant,” he explains.
Many homeowners purchase property with the view to renting it out – the ‘buy-to-let’ market. “This market makes up a substantial part of the residential property market and for good reason. It provides an investment opportunity to the homeowner, with the added benefit that the bond repayments essentially pay for themselves thanks to rental income from the tenant,” says Mthuli. Once paid off, rental income becomes a consistent and reliable source of monthly income.
Enter Covid-19, and the security of the buy-to-let investment is threatened. Landlords have had to choose between passing on rental increases and risk losing good paying tenants or dropping rental prices and hanging on to tenants. With a decreasing pool of tenants in good standing with their rental payment, the demand for residential property for the buy-to-let market is likely to decline.
What impact is this likely to have on residential property prices? This is where property valuers come in, and industry institutes like the SAIV which strives to keep members informed of market trends. Determining an accurate and fair property valuation can be complex, and so understanding these trends is crucial. Mthuli highlights: “The immediate thought is that this lower demand means residential property prices should decrease. But wait – there is so much more to consider. Not everyone who was released from their rental agreements in the past year moved in with their parents, friends, or extended families”. The unprecedented low interest rates have created an ideal property purchasing environment for some people, particularly first-time buyers. Low repayment rates have made purchasing a home more affordable.
Mthuli says, “This may mean more potential buyers, so property prices could increase as competition for homes goes up – especially homes which are suited to the ‘new normal’ with home-office space, reliable internet connectivity and more space for pets adopted during lockdown.” Homes in areas previously considered too remote are becoming increasingly attractive, and it could be argued that these kinds of properties might increase in value.
“However, while a bond may technically be more affordable today, the amount of people who can afford that bond is dwindling. Just look at the sales rates for new developments, which are proving to be slow. Add the increased vacancies in buy-to-let units, and a valuer might assess that a decline in property value is on the way,” says Mthuli, highlighting the complex set of data which a property valuer must consider. “My point here is not to make commentary on property values, but to emphasise the complexity involved in property valuations,” he concludes.
As part of the process of determining value for immovable property, one of the key functions that a property valuer performs, is to interpret market trends; a role which has become increasingly important considering the complicated trends currently seen in the market. The SAIV strives to help property valuers understand market dynamics, empowering them to make informed valuation decisions in the best interest of the public.