Even though South Africa had been severely hit by the COVID-19 pandemic, a surprise uptick in the real estate market had been signaled recently. The actual numbers are above the consensus estimates, with several factors supporting such a development. As always, I am Ofir Eyal Bar, and today I will use my insights into the South African real estate market to better understand why we see these positive developments.
Source: https://www.privateproperty.co.za/neighbourhoods/cape-town-city-bowl/59
South Africa Reserve Bank cutting interest rates
One of the main drivers of the outperformance had been the actions taken by the South Africa Reserve Bank. Cutting its benchmark interest by 300 basis points in 2020 alone had been a major benefit from mortgage interest rates. The costs to get a home loan had been reduced and now buying a home, even with a mortgage, is much convenient as compared to paying a monthly rent.
The latest reliable data available comes from July. Seeff Property Group, one of the major players in the local real estate industry, ended the month with the highest sales in the past six years. Buyers benefiting from an exemption of transfer duty, combined with a favorable bank-lending climate is the key to keeping up the pace for a longer recovery.
Rebound in consumer confidence
According to the Daily Maverick, a local South African publication, the FNB/BER Consumer Confidence Index rebounded 10 points in Q3 to -23. Even though the index is still at levels not seen since the early 90s, the pickup is indicative of the broad economic rebound the country is facing. This shouldn’t be a surprise for anybody, considering all countries that went through economic lockdown had gone on the same path. Imposing economic restrictions had been a major challenge for the real estate sector and the entire economy, including the Ofir Bar portfolio, considering I’ve been personally involved in the local industry for years.
New daily COVID-19 cases drop
South Africa ranks 7th in the world among the countries worst hit by the pandemic. With around 640k cases at the time of writing, it has a difficult task to keep the spread under control. The ascending trend had been elevated until July 24th, when the highest daily count had been published.
However, things had been moving in the right direction even since and now there are less than 2k cases reported per day. The reduction of new cases by more than 80% had been another major tailwind for better economic figures and for the real estate market, as well.
Buyers trust there’s value in real estate
The reduction in interest rates had an impressive impact on consumer behavior and now the country’s biggest real estate companies believe home buyers are increasingly confident this is the right time to buy. Marcel du Toit, CEO of Leadhome mentioned that “low interest rates bring down the costs to obtain a home loan and create a higher demand for real estate” which is exactly what’s going now with the real estate in South Africa and several other parts of the world.
Without a doubt, 2020 had been one of the most volatile in decades for the real estate sector, mainly because at the same time, there was a sharp economic fallout. Looking ahead, it is still a question whether the recovery will continue in a V-shape. We must not forget that it started later in South Africa, as the pandemic was kept under control with difficulties. In the long run, though, I continue to be optimistic a lot of upside potential can still be found.