If there was ever a time to have a crystal ball to see what the property market in South Africa is going to do in the short and medium term, it is now! There are so many variables at play at the moment that making a blanket prediction on where the market is going to go is virtually impossible.
South Africa’s downgrade to sub-investment, or “junk” status by rating agency Standard And Poor, is set to have a negative impact on consumers, and, as a knock-on effect, the housing market as a whole. Despite the foreign exchange rate making buying property in South Africa an attractive option for foreign investors, they are not taking advantage of the opportunities, scared off by uncertainty about the long-term stability of their investment. And when demand from foreign investors dwindles, the price of assets depreciates.
This is not a short-term problem, and experts agree that it is far easier to maintain an investment status than improve it once downgraded, estimating it could take up to eight years for our country to recover from this latest downgrade. The downgrade slows down our economy, and the cost of obtaining credit will rise. This impacts the building sector as developers will battle to obtain the financial backing they need to proceed with new projects.
But it’s not all doom and gloom! There is an upside to the downgrade, and it’s this:
If you are in the fortunate position of having cash available, then now is a great time to invest in property! It’s a buyers’ market, giving cash buyers significant negotiating power. And if you’re buying-to-rent, the rental market is growing rapidly. Although Baby Boomers and Generation X-ers are still fixated on owning their own property, millennials (those aged 20 to 35) like the freedom of being able to move easily and quickly from place to place to take advantage of work and life opportunities, meaning they prefer to rent.
However, current macroeconomic indicators make owning a property to rent up to twice as expensive as renting one. Interest rates and inflation, transfer costs, agents’ fees, net capital gains taxes, maintenance and repair costs and unpredictable municipal rates place huge financial burdens on property owners.
The Rise Of People Power
For this reason, predictions are that we will see an increase in properties to rent being bought by partnerships. It’s all about the economies of scale – buying multiple investment properties, either residential or commercial, with a group of partners means you can aggregate costs across more than one property, and more than one person, which offers significant benefits. It could even see your yield rising from around four percent to about 10 percent. The future trend for investment property buying will definitely be to team up with people who can see the benefits of leveraging the power of the collective.
Making Offices Work
A noticeable trend in the South African property market when it comes to office space is the significant interest in green-efficient buildings offering smarter and more agile workspaces. In contrast to the residential market – in which demand is highest for smaller, less expensive properties – the office market is demanding more expensive, future-proofed real estate designed to reduce operational costs in the long term.
The bottom line would seem to be this:
If you’re looking at buying property – for whatever reason – do your homework. What are properties going for in the area you’re interested in? Meet with estate agents and view as many properties as you can. And consult with a professional valuer, who will be able to give you an in-depth, professional and objective idea of what a particular property is worth. Armed with this information, you will be in a much stronger position when it comes to buying a property.
For objective, professional property valuations you can rely on, contact The Property Partnership East Rand on 0860 999 440 or Email: office@tpp.co.za – we’re standing by to help you.