On the back of a year of very slow economic growth, and with the threat in a Moody’s downgrade early this year, the outlook for South Africa’s residential property market looks flat and very slow. 2020 will start off with a property market which is oversupplied in most areas. Price growth is expected to remain flat and sellers will have to keep their asking prices market-related or risk not selling.

Households are under immense financial pressure and the focus will remain on affordability, value-for-money and cost saving for the bulk of the market. There will still be pockets of growth however the general performance of the South African housing market is likely to remain subdued.

Despite all the challenges faced there are many positive factors keeping the housing market steady. First-time buyers are fuelling property purchases and rentals, relatively low interest rates, affordability as the market self corrects on pricing, and an appetite for lending from competitive financial institutions.

The market has been boosted by the favourable home loan lending climate and unprecedented bank approval rates. This will however not translate into a stable recovery until economic growth and rhetoric about ownership stabilises and there is a real improvement in the job market with increased employment opportunities and bigger salaries.

It is hoped that economic growth will be stronger this year, despite risks to the downside, so it is possible that 2020 will see a slightly improved market than experienced in 2019 as the market does appear to be in the process of bottoming out. Supply is slowing in response to weak demand, with fewer new houses and fewer sellers listing homes in the market. Demand seems to be slightly stronger in the price band below R2 million, so the market could edge back into equilibrium and then we will see signs of an improvement in the market.

Young and first time buyers

Young buyers and first timers are a key positive for South Africa’s housing market, ensuring a steady supply of new buyers eager to gain a foothold on the property ladder. Developers are responding with a shift towards sectional title homes. This is a result of the shortage and cost of land and mixed-use developments offer an affordable live, work, play lifestyle close to employment hubs.

The recent introduction of micro-units in Cape Town CBD and surrounds A key driver behind the shift in housing in South Africa from freehold suburban homes to mixed-use precincts and developments, and the rise of shared, third spaces is the strong demand from first-time buyers who want a lock-up-and-go lifestyle and downtown living.

This is underpinned by the strong demand for affordable homes in CBDs nationally, with a large percentage of young buyers in Johannesburg, Durban, Port Elizabeth, Pretoria, East London and Bloemfontein, and to a lesser extent Cape Town due to the cost factor.

Developments

With a growing number of young people looking for accommodation and with people of all ages and incomes showing an increasing preference for smaller, more conveniently located homes – and with the existing stock of homes predominantly freehold suburban houses, there is plenty of reason for ongoing developments.

While the overall number of new buildings may have slowed, growth nodes continue to experience demand and developers are responding in areas such as Pretoria, the KwaZulu-Natal North Coast, Krugersdorp, East London, Cape Town, the Boland – notably Stellenbosch and Somerset West, and Fourways, for example Steyn City. There is also evidence of new residential units becoming available in mixed-use precincts and buildings in CBDs across South Africa (such as Jewel City in Johannesburg).

Peripheries increasingly appealing

Apart from CBDs and major centres, peripheries of key nodes will continue to enjoy demand .New growth nodes are becoming increasingly popular such as George and Pretoria East, also Gauteng East and West, Midrand, the KZN Highway Corridor, Krugersdorp, Plettenberg Bay and Knysna. The extension of the Gautrain will also be key to growth in peripheries as it will make new areas more attractive as commuting becomes easier.

Legislation

President Cyril Ramaphosa signed two major Acts into legislation that will have a significant impact on the real estate industry. The first is the Property Practitioner’s Act 22 of 2019, which will regulate the real estate market, creating a safer and more streamlined environment for both property practitioners and tenants alike. Tenants will benefit from additional safeguards that will regulate access to the rented property.

Shaun Rademeyer, CEO of MultiNET Home loans says “This Act is important in light of the popularity of sectional title living. With more renters and buyers seeking sectional titles that accommodate their lifestyles and modern living, this Act will give tenants peace of mind and property practitioners more efficient processes to rely on”.

The second Act takes the real estate market and property ownership into the digital age, the Electronic Deeds Registration System Act 19 of 2019 will introduce an online platform for deed registration, offering users access to their deeds and the registration process, anywhere, anytime. The slow and arduous process that has become synonymous with the registration and access of deeds at the specific Deeds Office could become a thing of the past.

“The record-breaking drought that is crippling South Africa’s agriculture combined with political instability and the possible economic crisis looming does not bode well for the local property market in 2020.” says Rademeyer.

The upside to this market, is that it is one of the best times to buy and we expect this to remain the case in 2020. There is the anticipation of an increase in the number of transactions, with activity concentrated largely below R1.8 million, supported low borrowing costs and favourable lending conditions.