EVERYTHING YOU NEED TO KNOW ABOUT THE PROPERTY SECTOR RIGHT NOW

“Knowledge is power”, and I agree, but only if you apply it with wisdom! And how can you apply something wisely if you know nothing about it? Especially property investment!

To make the best possible property investments, you need to have a basic understanding of the economy and what makes it turn.

We’ve summarised some economic factors that impact the property sector below to help you make the best decisions for your property portfolio.

Gross Domestic Product (GDP)

According to the International Monetary Fund’s (IMF), global growth is projected to slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023.

In South Africa, the GDP expanded by 1.9% on a quarter-on-quarter and seasonally adjusted basis in the first quarter (Q1) of 2022. According to the National Treasury, real GDP growth of 2.1% is projected for 2022.

Inflation

According to Statistics South Africa, the annual consumer price inflation quickened to 6.5% in May compared to 5.9% in April and March.

Many economists expect interest rates to continue to increase worldwide and in South Africa throughout 2022, possibly resulting in a decline in property price growth. Read our article, To Fix or Not to Fix your Interest Rate, That is the Question.

Property Price Growth

According to Lightstone’s Residential Property Index (end of April 2022), property prices’ current annual capital growth is 4.6%, with the Northern Cape performing the best and the North West in second place.

Read our article, 5 Reasons You Should Invest in Residential Property in South Africa Now. It’s not all doom and gloom. So, where do we go from here?

The map below shows the latest provincial house price inflation status from Lightstone.

provincial-property-trends-south-africa

Interestingly, Lightstone also says that coastal properties have performed better than non-coastal properties since 2014, and freehold properties have performed better than sectional properties 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 for most of the time since 2017.

property-investment-analysis

Collections and Good Standing

According to the TPN Rental Monitor Residential Sector Q4 2021 report, residential tenants in good standing have recovered from the 73.50% at the beginning of the pandemic to 81.40%, almost at pre-pandemic levels.

In our previous article, 5 Ways to Manage your Rental Property Portfolio Better, we discuss how you can beat these averages.

Rental Escalations

Although inflation has escalated from the fourth quarter of 2021, rental escalations have remained low, with an average  quarterly year-on-year rental growth of 1.8%, according to the PayProp Rental Index Q1 2022 Report. These rental escalations are still significantly lower than in 2019 and 2020.

Conclusion

So, where does all of this leave you and your property investments? This is my take on our current property forecast and economic outlook.

Firstly, it’s still a buyer’s market out there with high supply and lower demand. And people are desperate, so you might just snag a great deal!

Secondly, the rental market is recovering with fewer tenants in arrears and increasing rental growth. Property prices are also still going up.

Thirdly, interest rates are still low, so buying investment property has never been more affordable.

Lastly, property is still one of the best investments. Your ungeared return on property (capital growth plus net rental yield) remains higher than returns on most other investments.

In one of our previous articles, Build a Significant Property Portfolio With Actionable Goals, we discuss how you can build your property portfolio consistently throughout the economic cycles.

Therefore, I am still a champion of property investment and wholeheartedly believe that although the sector appears cloudy at the moment, there is always an opportunity to make it rain.

X