Despite the uncertainties surrounding Covid-19 and the ensuing lockdowns, the residential property market has proven to be one of South Africa’s more resilient sectors, despite the challenging trading environment, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
While the unexpected strength in the housing market last year was catalysed by first-time buyers responding to the aggressive interest rate cuts, in 2021 the national housing market was driven by a second wave of demand – fuelled by repeat buyers as first-time buyers felt the impact of the weak economy and the benefits of the rate cuts began to fade, he said.
“These repeat buyers were motivated by the interest rate cuts, but also by the ability to relocate due to the option to work from home and the desire for a larger home and/or more relaxed lifestyle in a more affordable home in the peripheral suburbs of the metro areas and smaller towns traditionally considered retirement or holiday destinations – resulting in a so-called Zoom Boom.”
This convergence of factors resulted in an unexpected surge in residential market transactions, despite the severe economic disruptions caused by the pandemic, Golding said.
“This desire to relocate was partly in response to lockdown, which made a larger house a necessity due to work-from-home (WFH) and homeschooling, and outdoor space, in particular, more appealing.
“The ability to WFH made it feasible to consider suburbs and towns that had previously been too far from schools and the workplace, but which typically allowed homeowners to buy larger, more affordable freehold homes, which in turn saw a temporary pause in the long-term structural shift in the national housing market towards sectional title homes.”
Looking ahead, Dr Golding outlined the trends and factors likely to have an impact on the housing market into 2022.
Interest rates
These are likely to be moving higher, but the slow pace suggests this will remain a benign environment for the housing market with interest rates expected to rise gradually in small 25bps increments. However, the sluggish economy is likely to prove to be a headwind.
“That said, the emergence of the new variant and the arrival of a fourth wave of Covid infections may well delay the likely timing of further interest rate hikes,” he said.
Affordability
“We have already seen the surge in first-time buying demand fade as the effects of the aggressive interest rate cuts early last year abate.
“Although interest rates are unlikely to prove a significant impediment, consumers are dealing with the economic fallout of the pandemic, load shedding and subdued growth prospects,” said Dr Golding.
He said that South Africa’s young population does mean that there will always be a steady demand from young buyers – to the extent that they can afford to purchase a home.
Co-living & merging of residential & commercial
The co-living trend continues to gather momentum despite initial fears that the pandemic would bring this to an end, Pam Golding said.
“People have realised that infection is more about shared air space than contaminated surfaces, and outdoor space is likely to retain its appeal as we all spend more time at home. Less time than last year, but more time than before Covid,” said Golding.
He said that a key theme of the pandemic is that businesses need to be as flexible as possible, so co-working remains popular, as does co-living – in micro-units with shared living spaces which offer community and reduced costs and maintenance.
“The concept has progressed even further with developments like BlackBrick where the monthly rental includes accommodation in BlackBrick developments in both Cape Town CBD and Sandton.
“These and the Neighbourgood developments focus on the creation of community with the accommodation offering as flexible as possible.”
Conversion of office space
“We have seen the conversion of office space into residential and/or the mixed-use model for some time but now as businesses become more flexible to survive in the pandemic economy, there is a focus of trying to tap into as many markets as possible, namely office, retail, residential, gym etc,” said Golding.
Examples include two businesses using the same venue at different times of the day, and office space offering a food hall instead of a reception area in order to increase the appeal of the work space.
“Pure office space is likely to be under the most pressure of all sectors, so it is anticipated that much of this will have to change – often including a residential component.
“One Thilbault, for example, in Cape Town’s central city, is redeveloping into 50:50 office and residential. In Johannesburg, particularly in the Bryanston area, we are seeing increased interest in converting office parks to sectional title apartments.”
Business hubs
It is becoming apparent, particularly given the acceleration in fuel price hikes, that even if people only come to the office occasionally, the office needs to be in a prime and accessible location, making the location even more important than before, said Golding.
“This implies a focus on central cultural districts in recognition of the fact that people are not there purely for the business but rather acknowledging the fact that in order to collaborate they may need a physical connection.”
He said that for many young people, living in the CBD is not only about access to work it is also about the ‘buzz’ factor.
Given South Africa’s young population, many are likely to prefer life in a city hub to the quiet life in the country, Golding said.
“Well located apartments in a business hub continue to offer an appealing lifestyle to many young buyers, with the buzz of city living with bars, clubs, coffee shops, restaurants and other entertainment and numerous work opportunities, or at least co-working spaces and proximity for start-ups and SMMEs.”
Fading Zoom Boom but semigration prevails
One of the key trends to emerge during the pandemic was the rise of the Zoom Boom – the realisation that working remotely meant that you were able to live anywhere, Pam Golding said.
This prompted many homeowners to relocate to peripheral suburbs areas or to smaller towns historically considered holiday or retirement destinations.
“Now, however, people are gradually returning to the office amidst a realisation that there are certain types of work which require physical interaction with ones’ colleagues,” said Golding.
“While there is currently general agreement that we are unlikely to return to the five-day at the office workweek which prevailed prior to the pandemic – adopting some type of hybrid model instead – the realisation that one may well be required to be present in the office three days a week (at least) has made people reassess the reality of living a few hours’ drive away from their place of work.”
However, he said it appears likely that the longer-term semigration to the Western Cape will continue as it remains the one province that is still able to deliver.
For example, the ability of the City of Cape Town to keep businesses and residents at Stage 1 when Eskom has everyone at Stage 2, will reinforce its appeal.
“For those not able to afford a home in Cape Town metro housing market, the second tier and coastal towns in the Western Cape will remain appealing – not because of the Zoom Boom but on a permanent basis as desirable lifestyle destinations.
“These include, among others, areas on the Cape’s Whale Coast such as Hermanus and Onrus and Boland towns like Somerset West, Stellenbosch, Franschhoek, Paarl and Wellington, as well as George on the Garden Route.”
Are people looking to rent or buy?
The shift from renting to buying was probably at its peak in 2020 as FTHB took advantage of the interest rate cuts, said Pam Golding.
“Now that the impact of those cuts is fading and the reality of the sluggish economy is being felt, the rental market is improving. Also, the need to be as flexible as possible in these extremely uncertain times will undoubtedly increase the appeal of rental.”
However, South Africa has a strong tradition of homeownership that remain intact, including first-time buyers and those seeking value for money, Dr Golding said.
“On the Cape’s Western Seaboard, we are experiencing a severe stock shortage up to R2.5 million for freehold properties and correctly priced homes sell within seven days. Meanwhile, in Cape Town’s Northern Suburbs well-priced properties sell rapidly with the demand outweighing supply in some areas,” he said.
Estates remain sought after
Homes in estates remain in high demand and buyers will pay a premium for a sought after, secure estate – for example, Pam Golding Properties recently sold out a luxury development in upper Constantia comprising 12 homes priced from R10.5 million each, including VAT.
Multi-generation living
The need for flexibility amidst challenging economic conditions suggests that multigenerational living will continue to gain in popularity, said Pam Golding.
Going off the grid
Where affordable for homeowners, there is an ongoing desire to go off the grid, even if partially, with the installation of energy and water-saving solutions which are now becoming the new normal amid rapidly rising costs of electricity and utilities coupled with poor service delivery, and partly because climate change is becoming a critical mainstream issue, Dr Golding said.
“We remain optimistic regarding the country’s residential property market, which is expected to remain active as the long-term appeal of this sector holds strong,” said Dr Golding.
“This is especially so since, in addition to the usual reasons for movement in the marketplace, the lockdown has inadvertently created the rationale for a wave of new reasons for relocation and property acquisitions, from the aforementioned upsizing for additional space due to work from home scenarios to lifestyle moves to more appealing destinations further afield.
“If you can live and work anywhere, it makes sense to live somewhere with a better quality of life in a more desirable location.”
He said that with a population of predominantly ‘young’ buyers, many of whom are likely to prefer life in a city hub, the increasing demand for accommodation to buy is helping drive activity in the residential property market, filtering upwards across all sectors of the market, boosting activity in middle markets and higher price bands as some existing homeowners upscale, and even creating stock shortages in high-demand areas.
Article Source: https://businesstech.co.za/news/property/546632/what-to-expect-from-south-africas-housing-market-in-2022/
