This evening marks the start of a new five-year cycle in South Africa with re-elected President Cyril Ramaphosa delivering the Opening of Parliament Address. South Africa’s new government of national unity has investors and property professionals alike looking forward to a period of greater stability and stronger housing and rental prices, says PayProp.
The opening of Parliament will be attended by members of both houses, the National Assembly and National Council of Provinces and will mark the start of the new five-year parliamentary cycle.
The address provides President Cyril Ramaphosa an opportunity to outline the key priorities and policies of the seventh administration. The seventh administration is made up of several political parties that formed a Government of National Unity founded on the respect for the Constitution, the Bill of Rights in its entirety, a united South Africa and the rule of law.
According to John Herbst, CEO of Fine & Country Sub-Saharan Africa on 14 June South Africa’s political leaders agreed to the broad alliance which saw asset prices grow sharply as well as strengthening of the Rand. While housing prices tend to be slower to react to the headlines, estate agents believe they should follow suit.
Herbst says a stronger currency goes hand in hand with stronger house price growth. But that could in turn reduce foreign investment in South African property as overseas buyers get less for their money.
Indeed, we may already be seeing signs of a recovery: the Lightstone Housing Index for May shows that year-on-year house price inflation reached 3.22%. That’s still sluggish, but growth has now accelerated in each of the past four months. Meanwhile, monthly house price growth rose to 0.42%, close to the peak it reached in late 2020.
What about rents?
The PayProp Rental Index for Q1 2024 showed that rental growth, while still in effect, fell for the first time since 2021, to 3.8% from 4.6% in the previous quarter. An uptick in economic growth could help lift rental growth again, but for now, high inflation and interest rates have reduced tenant affordability and limited rent increases.
Those pressures are likely to persist. Inflation isn’t expected to reach its 4.5% target until Q2 2025. On the other hand, high interest rates are helping to shore up rental prices as they deter first time buyers, and it is still possible that rental growth could rally.
Our next indication of where rents are going will be the upcoming PayProp Rental Index for Q2 2024. Based on real rental transactions, it is relied on by property professionals across South Africa to track national and provincial rental growth, arrears trends and more.
READ: Becoming a property mogul in South Africa
Craig Mott, Business Development Manager for the Rawson Property Group, also shares the top 4 techniques used to build these high-performance portfolios that deliver mogul-worthy returns.
Don’t overlook an opportunity
“The best property investors keep a constant finger on the pulse of the property market,” says Mott. “They’re constantly on the lookout for optimal conditions and aren’t afraid to leap when an opportunity presents itself.”
Currently, Mott says the market is ideally positioned for portfolio expansion, with excellent lending rates and a wide variety of stock available.
“We’re seeing a lot of savvy investors using this time to fill gaps in their portfolios and implement strategic expansion strategies,” he says.
Build strategic partnerships
Becoming a property investment expert doesn’t happen overnight. That’s why most successful investors have a property professional on their team.
“Building a relationship with an experienced real estate and/or rental agent opens a lot of doors for you as an investor,” says Mott. “Not only can you get early access to prime, as-yet-unlisted properties, you also get up-to-the-minute advice on the latest investment best practices, legislative updates and property trends.”
Understand what success looks like
Bigger isn’t always better when it comes to property investment. According to Mott, the key metric to look out for is not overall portfolio value, but rather whether your total returns equal or exceed those of equivalent monetary investment funds.
“If, for argument’s sake, the same money would have performed better in a money market – before capital appreciation – you can’t regard that investment as being successful,” says Mott. “Of course, property investment is a long-term venture, so don’t be overly swayed by individual properties’ short-term performance. At the same time, don’t put all your eggs in the capital appreciation basket – investment properties shouldn’t need to be sold before they deliver profits.”
Never take performance for granted
Done right, Mott says property can dramatically outperform almost any other asset class. If it’s not living up to its full potential, it’s time to update your strategy.
“There are always going to be properties that don’t perform as expected, and these can drag the overall returns from a portfolio down,” he says. “Don’t fall into the trap of hanging on to this ‘dead wood’. The most successful investors do regular checks of each and every property’s performance. Those that consistently deliver below expectations, and cannot easily be remedied, should be sold to increase cash flow or finance more promising new investments.”
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