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What’s in store for SA’s residential property market in 2020?

10 Dec 2019

Growth in the South African residential market remains stagnant, with experts predicting no improvement until the final quarter of 2020, when supply is expected to align better with demand.

Although no improvement is expected until late 2020 and the rental market will continue to see price suppression with an oversupply of stock, it's a good time for savvy buyers.

Ben Shaw, Chief Executive Officer of HouseME, a digital long-term letting platform, says that rental growth across the entire country has been below inflation for most of the year, resulting in real losses for landlords across the country. “Rental prices have been unable to match inflation as tenants have an abundance of supply to choose from and force prices down due to this choice. In the Western Cape, for example, 57% more residential building plans have become available in 2018-19, compared to a more reasonable 11% growth in 2017 - a year which saw the market quite stable and prices protected. 23% more new flats and townhouses were completed in the first half of 2019 compared to the same period in 2018. Tenants are genuinely spoiled for choice.”

Shaw believes that the rental market will continue to see price suppression until Q4 next year. “In addition to oversupply, financial pressure is also negatively affecting rental demand as shared communal living remains the norm.” Net income levels among residential tenants have stagnated, and with rent and inflation increasing at higher rates than the average income, South Africans are struggling to keep up.

It's a good time for savvy buyers though. “Landlords of bonded investment properties are under pressure to recoup investment value if they cannot service their bonds. This, I believe, along with continuing political turbulence, has resulted in a number of investors choosing to sell, meaning that it is a truly fantastic time to be buying – or renting.”

There are worrying indications that a number of developments are in trouble as they struggle to find buyers

Shaw adds that any form of instability or uncertainty harms long-term investment performance and that the current high level of emigration is impacting on the property market. “We have noted an increasing number of rentals being retracted by the owner for reason of ‘sale’, before we’ve managed to place tenants for them.”

While it appears that some buyers believe the market has bottomed out, Shaw believes this is still a few months off. “There are worrying indications that a number of developments are in trouble as they struggle to find buyers. It’s a tough market, but it’s not all bad news. Secure village communities, exclusive health- or age-constrained developments and coastal town housing will continue to do well in isolated pockets as these are driven by factors other than working professionals’ demands.”

He also predicted that tenants would continue to hold the power in the rental market relationship into 2020 and that the Consumer Protection Act places additional burdens on landlords that many seem to be unaware of.

With the stressed economic environment giving rise to more tenants with poor credit records, HouseME’s DepositFREE renting option – which protects landlords by allowing HouseME to take tenant default risk on their behalf – has been hugely successful. “We have found that tenants are opting to rent properties listed with us compared to other agencies just for this product, which gives them some much-needed liquidity.”

Shaw says this bodes well for a strong 2020 for HouseME, which has seen triple digit growth since their launch in 2016, buoyed by an understanding of the variety of rental pain points, from both the landlords’ and tenants’ perspective.

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