Property Investment TipsProperty Management

Your Property Forecast… Cloudy with a Chance of Making it Rain

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)

The entire world suffered severe economic strain with the pandemic. According to the International Monetary Fund’s (IMF) World Economic Outlook October 2021, the GDP World Output was -3.1% for 2020. However, the IMF predicts a 5.9% growth in 2021 and a 4.9% growth in 2022.

In South Africa, the GDP was -6.4% for 2020, and the IMF predicts a 5% growth in 2021 and a mere 2.2% in 2022.

Inflation

According to Statistics South Africa, the annual consumer price inflation was closer to 5% in September 2021 compared to 4.9% in August and 4.6% in July.

Many economists expect interest rates to increase worldwide and in South Africa in 2022, possibly resulting in a decline in property price growth. But there could also be more people who need rentals as fewer people can afford to purchase property at higher interest rates.

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?

Property Price Growth

According to Lightstone’s Residential Property Index (end of August 2021), property price’s current annual capital growth is 4.89%, with the Eastern Cape performing the best and the Free State in second place.

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

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.

Collections and Good Standing

According to the TPN Rental Monitor Residential Sector Q2 report, residential tenants in good standing have recovered from the 73.50% at the beginning of the pandemic to 80.34%, 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 beginning of 2021, rental escalations have remained low, with an average escalation below 1% for the entire 2021, according to the PayProp Rental Index Q2 Report. These rental escalations are 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.

Read the entire article in the November Edition of Real Estate Investor Magazine.

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