There will be two main keys to the anticipated revival of the South African real estate market next year, the first of which is a drop in the repo rate leading to lower mortgage rates, says Berry Everitt, CEO of the Chas Everitt International property group.
"And while the South African Reserve Bank (SARB) followed the lead of the US Federal Reserve and kept its repo rate on hold at 8.25% this week, an uptick in the inflation rate means there is still a possibility of another increase in January before home loan interest rates start to moderate, and activity in the real estate market starts to increase significantly.
Stronger Rand
"A strong reason for such a rate increase would not only be to combat inflation but also to shift the differential between SA and US interest rates closer to the 3,5% gap reached two years ago. A bigger gap makes SA more competitive in attracting foreign investment, strengthens the Rand and lowers inflation."
As it is, he notes, many investors have already increased their appetite for emerging markets like SA because they believe that the US interest rate hiking cycle has ended. "This bodes really well for a stronger Rand, greater economic growth and job creation, and for increasing consumer confidence.
"This is the other critical component of a healthy property market, and it will be further improved as the use of alternative energy by both businesses and households increases and loadshedding becomes less severe."
Meanwhile, consumer price inflation in SA is expected to slow more this year and to settle at around 4,5% in 2024, which is the midpoint of the Reserve Bank's target range. This will bring further relief to many households that have been struggling to make ends meet and enable many more to qualify for home loans.
Conflict risk
"We are allowing for the possibility that the global economic picture could change rapidly if conflict deepens in the Ukraine and/ or the Middle East," says Everitt. "This could create food and fuel shortages that would once again raise inflation all over the world and limit consumer appetite for new real estate purchases either in their home countries or internationally.
"We are also allowing for a general election in SA that could disrupt the market for several weeks and make some buyers more cautious as they wait for the outcome.
"As things stand now, though, things are definitely looking more positive for the SA market in 2024 and early 2025. Affordability, which has been a problem for homebuyers due to the rising cost of living over the past two years, will improve and be less of a constraint on home purchases as interest rates start falling."
At the start of the year, there will also be plenty of inventory for astute buyers and investors to choose from, he says, as those homeowners who have 'run out of runway' after the trials of the past few years are forced to sell.
Prices under pressure
"This will put downward pressure on prices for at least the first half of 2024, and serious sellers will need to be very careful not to overprice. In fact, we anticipate that home price growth will remain below 5% in 2024.
"However, the demand will definitely be there, especially in the R600 000 to R5m price range, and we anticipate that home loans will also be readily available to those with clean credit records."
Everitt says the market above R5m will also improve, albeit more slowly, as high net-worth individuals increasingly realise that SA luxury homes are extremely well priced and offer exceptional value in world terms.
Vigilance required
Turning to the rental sector, he says demand is expected to remain high and ensure good returns for investors, especially in the best performing R7500 to R12 500 a month category, provided that landlords remain extremely vigilant when vetting tenants. "They simply must ensure that they work only with managing agents who have the right systems to conduct all the necessary credit and background checks, or they risk ending up with more problems than profits.”
Everitt also notes that in the commercial real estate sector, specialised warehousing in strategic locations between city centres is becoming an increasingly profitable investment due to the high growth in online purchasing.
