A GUIDE TO THRIVE IN PROPERTY INVESTMENT IN 2024
The property investment landscape is a dynamic arena, ever-changing with global economic shifts and technological advancements. As we step into 2024, it’s crucial to stay ahead of the curve and adapt to the evolving trends that shape the industry.
We’ve seen many changes in the local and global economy in the last few years that hugely impacted the property sector. From the rising interest rates to the unemployment rates, 2023 was an interesting year for property investors.
Despite the challenges, there are huge property investment opportunities out there. And I don’t know about you, but I’m going into 2024 with a renewed focus to take advantage of every single opportunity that comes my way! If you want to do the same, considering the following trends and factors will help you to build wealth and experience financial freedom through property investment.
1. The Global Economic Outlook: Gross Domestic Product (GDP) Projections
According to the International Monetary Fund (IMF), global growth is projected to slow from an estimated 3.4% in 2022 to 2.8% in 2023 before settling at 3.0% in 2024.
The real GDP growth in South Africa (SA) was 1.9% in 2022, and Statistics SA projected it to be 0.9% in 2023. But Statistics SA has provided some cheerful news to SA by raising our GDP growth projection for 2024 to 1.8% – a hopeful outlook for investors!
2. Inflation Dynamics: A Balancing Act
According to Trading Economics, the annual inflation rate in the US was 3.1% in November 2023, which is significantly better than a year and a half ago when it was ±8%. The target rate, however, is 2%, which means that the US is still intentional to get inflation down. This could mean further hikes or keeping rates the same – we’ll have to wait and see.
In SA, the annual consumer price inflation was 5.5% in November 2023 compared to 5.9% in October 2023 (Statistics SA). We are on target, so we can likely breathe a sigh of relief as it is unlikely that the Reserve Bank will increase interest rates further.
The current prime interest rate in SA is 11.75% and many economists believe that interest rates are nearing the top and will then begin to stabilise.
3. Opportunities Unveiled: Property Price Growth
Contrary to some concerns, the property market holds so many opportunities. Lightstone’s Residential Property Index (October 2023) reveals a current annual capital growth of 3.2% for property prices.
The map below shows the latest Lightstone Provincial House Price Inflation status.
SOURCE: LIGHTSTONE RESIDENTIAL PROPERTY INDEX (JULY 2023)
Interestingly, Lightstone says that coastal properties have performed better than non-coastal properties for most of the time since 2014.
Although the returns are very close to each other now, freehold properties have outperformed sectional properties for most of the time since 2010.
Lightstone also shows that properties valued at less than R250 000 have outperformed all other value bands for most of the last 10 years, although the growth has recently started to cool down. Properties valued between R250 000 and R700 000 have come in second most of the time since 2017.
The Lightstone Area Value Bands Index below reviews inflationary rates for property based on the following values:
Luxury: >R1.5 mil; High Value: R700k to R1.5 mil; Mid Value: R250k to R700k; Low Value: <R250k
4. Rental Realities: Collections, Good Standing, and Escalations
When it comes to renting, there had to be a positive recovery at some point since the pandemic… According to the TPN Rental Monitor Residential Sector Q3 2023 Report, residential tenants in good standing have finally recovered to 83.34%. The upper to mid-level brackets recorded their best good standing ever!
Rental growth rebounded impressively over the last eight quarters since Q3 2021 when we recorded Year-on-Year growth of just 0.2% (PayProp Rental Index Q3 2023 Report). It has recovered to be better than pre-pandemic levels and currently stands at 4.4%!
A Bright Future Awaits Property Investors
Despite challenges, my optimism about the market’s potential for growth and success remains unwavering. However, understanding how economic factors influence our property investments is paramount to seize opportunities in this evolving landscape. So, let’s get into some of them:
Right now, the average property price growth is ±3%, and the average net rental yield can be 6% to 8%. The ungeared return on property (your capital growth and net rental yield) is also currently very decent.
The market currently favours buyers with high supply and lower demand. Rental demand is also recovering, with fewer tenants in arrears and rental income growing nicely. So, stay ready, take advantage, and secure those great deals!
The property price growth is also continuing to rise, and I believe it could be significantly higher in the future because of the following factors.
| Average Property Price Growth | From 2003 to 2023, the average property price growth was 8.3%, which is significantly higher than the 3.2% we are currently experiencing. |
| Property’s Input Costs | The prices of construction materials, construction worker labour costs, and land prices, have increased faster over the last decade than property prices, which can also lead to higher future property price growth. |
| Rental Escalations | Rental escalations determine your rental yields on the property, and they are also higher than property price growth in SA, possibly leading to higher property price growth in future. |
| Interest Rates | Although they seem to be very high at the moment, they should start to decline in the near future. This can also have a positive effect on demand and increase property prices. |
The enduring potential of the property investment market is a truth that stands firm over time. In 2024, I foresee a positive shift with increased demand and rising property prices. Let’s embrace change, stay vigilant, and capitalise on the wealth of opportunities that property investment offers. Here’s to a highly successful investing year in 2024!
Read the entire article in the February Edition of Real Estate Investor Magazine.