5 Factors impacting the current property market right now
The property investment world is constantly evolving, and staying on top of the latest trends and analyses is essential if you want to succeed in this highly competitive market.
In the last few years, the global economy has changed significantly, which has impacted the property sector in many ways. Many factors influence the current state of property investment, from rising interest rates to evolving demographics and technological advancements.
In this article, we explore 5 of the most important trends and analyses to consider if you want to make informed decisions and stay ahead of the property investment game.
1. Gross Domestic Product (GDP)
According to the International Monetary Fund (IMF), global growth is projected to slow from an estimated 3.4% in 2022 to 2.9% in 2023, then rise to 3.1% in 2024.
The real GDP growth in South Africa (SA) was 2.6% in 2022, and the IMF projects it to be 1.2% and 1.3% in 2023 and 2024, respectively.
2. Inflation
According to Trading Economics, the annual consumer price inflation in the US declined to 6.4% in January of 2023 from 6.5% in December 2022.
Statistics SA shows that the annual consumer price inflation in SA declined for the third consecutive month to 6.9% in January 2023 compared to 7.2% in December 2022.
The current prime interest rate in SA is 10.75%. Many economists believe that interest rates are nearing the top before they will begin to stabilise. Read our article, To Fix or Not to Fix your Interest Rate, That is the Question for more insights.
3. Property Price Growth
It’s not all doom and gloom for property investors! There are so many opportunities to take advantage of. According to Lightstone’s Residential Property Index (end of December 2022), property prices’ current annual capital growth is 2.7%, with the Eastern Cape performing the best and the Northern Cape in second place. Annual property inflation in the Low-Value segment was again much higher than in other segments.
Paul-Roux De Kock (Chief Analytics Officer at Lightstone) said these three scenarios suggested that House Price Inflation (HPI) in SA for 2023 would likely come in between 0.9% (low) to 2.3% (mid) or 3.7% (high).
This map shows the latest Lightstone House Price Inflation (HPI) status.
Interestingly, Lightstone also says that coastal properties have performed better than non-coastal properties for most of the time since 2014, and freehold properties have outperformed sectional properties for most of the time since 2010.
Lightstone shows that properties valued at less than R250 000 have outperformed all other value bands for most of the last 10 years! 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:
So, where do we go from here? Start with our article, 5 Reasons You Should Invest in Residential Property in South Africa Now.
4. Collections and Good Standing
According to the TPN Rental Monitor Residential Sector Q2 2022 Report, residential tenants in good standing have recovered to 82.2%, which is at pre-pandemic levels. The upper to mid-level brackets recorded their best good standing ever!
In our previous article, 5 Ways to Manage your Rental Property Portfolio Better, we discuss how you can beat the averages of collections and good standing.
5. Rental Escalations
According to the PayProp Rental Index Q4 2022 Report, growth has rebounded impressively
over the last five quarters since Q3 2021, when we recorded Year-on-Year growth of just 0.2%. It has now recovered to pre-pandemic levels.
Key Takeaways for Property Investors
As property investors, we must understand how certain trends and economic factors impact our investments. Here’s my take on the current property forecast and economic outlook and what it means for your property investments.
Your ungeared return on property is your capital growth and net rental yield, which is currently a very decent return. Right now, your average property price growth is ±3%, and your average net rental yield can be 6% to 8%.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!
Property price growth is also continuing to rise, and I believe it could be significantly higher in the future. Here are my three reasons why:
- The average property price growth since 2000 is 9.5%, which is significantly higher than the 2.7% we are currently experiencing. Higher property price growth is in our future!
- Property’s input costs, including construction materials (such as concrete, bricks, steel, etc.), construction worker labour costs, and land prices, have increased faster over the last decade than property prices increased, which can also lead to higher future property price growth.
- Rental escalations, which determine your rental yields on property, are also higher than property price growth in SA. This could also lead to higher property price growth in future.
Our article, Build a Significant Property Portfolio With Actionable Goals, also discusses how to build your property portfolio consistently through economic cycles.
Despite uncertainties in the property investment sector, I still believe in the power and potential of property investment. There are endless opportunities for growth and success, and I, for one, intend to make the most of them!