Predictions: Where the property market is heading.
Category Property Finance
Following the first reprieve within the seemingly endless streak of interest rate hikes, many homeowners might be curious to know where the local property market is heading: where will interest rates sit and what will property prices do as inch closer to the end of the year?
The South African Reserve Bank's Monetary Policy Committee decided to keep the repurchase rate at its current level of 8.25% per year, with effect from 21 July 2023.
Giving his perspective on the topic, Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa thinks that there will be a plateau in interest rates only after September. "I believe that by then, we will (hopefully) be well enough within our inflation targets. I also foresee that interest rates will probably hold steady for a while and that we will probably only start seeing a downward trend later in 2024," he predicts.
Speaking into what this will mean for the local housing market, Goslett says that high interest rates mean consumer affordability is impacted. "Fewer people who can afford bonds will lead to fewer transactions. If this happens for a sustained period, sellers will need to adjust prices downwards to get their homes sold," he notes.
This in turn will have an impact on average house price appreciation, which Goslett predicts is bound to stay stagnant for some time. However, he notes that this is area dependent. "Semigration to the Western Cape is a real thing. Despite the fact that RE/MAX SA has more agents operating in Gauteng, for the first time in a very long time, our total YTD Registered Sales Value in the Western Cape has exceeded Gauteng, and this was driven by higher average selling prices in that region (R2.6 versus R1.5m)," Goslett explains.
With access to capital becoming more restrictive, Goslett also predicts that people will become more likely to extend rental agreements rather than enter the housing market and might even turn to renting as an alternative to homeownership. "Higher demand for rentals will push rental prices up or at the minimum, keep rental prices high," he predicts.
If you are serious about selling this year, Goslett's advice is to make sure your home is priced accurately or, in other words, is priced to sell. "The pool of buyers in the lower- to middle-income sectors has reduced because of affordability factors. Fewer buyers means more competition for sellers, placing a little more negotiating power in the hands of the buyer. Advice to sellers would be to use a an experienced professional to assist in helping to value and sell your home."
For those hoping to buy under these conditions, Goslett's advice is to get prequalified before going house hunting. "Nothing ruins the experience more than finding what you believe to be the perfect home, only to run into affordability issues. Finding out upfront and then putting corrective measures in place should you need to, to shore up the difference, will ensure you are not disappointed when you go home hunting."
He also warns real estate professionals that there will be less homes sold this year. "That is a fact. Make sure you're with a company that offers a compensation plan that allows you to earn more per deal than you were before and importantly, a company that provides the brand awareness, technology, systems and tools to help you achieve that," he says.
How to win the battle for quality tenants
Rising interest rates have significantly boosted the demand for rental accommodation over the past 18 months, and this has been reflected in sharply declining vacancy rates and some upward pressure on rentals.
However, says Andrew Schaefer, MD of leading property management company Trafalgar, landlords should not count on these trends escalating or even continuing in the current economic climate. "The majority of tenants are under considerable financial pressure due to high inflation and rising interest rates and on top of that, loadshedding and low economic growth is creating a higher risk of unemployment.
"Consequently, the rental market is increasingly competitive, and the risk of rental defaults is actually rising, so landlords need to be wary of unilaterally implementing rental increases now that might easily prompt existing tenants to leave or put new tenants off. They should rather focus on attracting and retaining quality tenants by doing whatever they can to increase the desirability of their rental properties and ensure that they provide good value for money."
He says landlords could for example decide to provide or improve some of the features that tenants value the most. "Currently, this might include installing a gas stove so that loadshedding does not necessarily interrupt meal preparation, or installing an inverter and battery system to power fridges, computers and other essential items during blackouts.
"In freehold properties, a solar power system or at least a solar geyser is a draw card, and even in Sectional Title homes, it is possible increase the appeal by providing eco-friendly items that are increasingly sought-after, such as LED light bulbs, water-efficient taps and showers and sustainable flooring.
"Good security is also a priority for most tenants, so it is worth taking steps to improve the security and safety of the property, especially if it is not located in an access-controlled complex or estate. Secure locks, burglar guards and good outdoor lighting are essential, and landlords should consider adding electric fencing, security cameras and an alarm system if at all possible."
Schaefer says other ways to make tenants feel that they are getting great value for their rent include the following:
*Good maintenance and prompt repairs. "It is vital to ensure that the grounds and exterior of the property always look well-maintained and inviting, and that the interior is clean, well-lit and visually appealing. Tenants also really appreciate quick and positive responses to requests for essential repairs."
*Wrapping the cost of certain amenities into the rent, such as high-speed internet, laundry facilities, secure parking and additional storage space, or even a certain amount of pre-paid electricity.
*Maintaining good communication and giving good customer service. "This creates a positive landlord-tenant relationship and a sense of satisfaction and loyalty that encourages tenants to stay put and renew their leases," he says. "And it is always preferable to retain a quality client who looks after the property and pays the rent on time, even if you have to settle for a lower increase when renewing."
*Lease flexibility and incentives. In some areas, landlords may find that shorter lease terms are attractive to certain tenants, such as those on six to eight-month work contracts, and that they are prepared to pay a premium rental rate for this convenience. On the other hand, landlords may want to consider incentives for great long-term tenants who renew, such as a smaller rental increase, or an increase only once every two years.
But before making any changes, Schaefer says, landlords should engage a qualified and experienced rental agent to advise them about current rentals in the area and what "extras" tenants are looking for, and to ensure that all potential tenants are properly screened.
"Finding new tenants who are reliable is increasingly difficult because of the financial problems that many people are experiencing, so it is really important to be sure that anyone who is moving into your rental property is not only creditworthy and employed, but also has a good rental payment record.
"In addition, a good rental agent will help you to manage the maintenance of your property and any necessary repairs and contribute to the development of a sound and lasting relationship with your tenants."
Author: Property24
