All the lights are green now for real estate

South Africa's economic recovery is rapidly gaining momentum - and the real estate sector is poised to follow suit in the wake of this week's 25 basis point interest rate reduction by the Reserve Bank, which heralds a cutting cycle expected to last through next year and will make home ownership more affordable.  

In fact, says Berry Everitt, CEO of the Chas Everitt International property group, there has been a steady growth in both demand and sales since the start of the year, and this is supported by the latest statistics from leading mortgage originator BetterBond, which show 3,5% YOY increase in the number of home loan applications to end-August, and a QOQ increase of 6,5%. The number of applications approved in July and August was also up 5% on the same period of 2023, while home prices showed an average YOY increase of 6,4%.

"Meanwhile the Bureau for Economic Research anticipates that the economy will grow by 2,2% next year thanks to the new unity government's commitment to implementing key economic reforms and mobilising billions of rands worth of investment to fix the country's infrastructure and logistics problems.

"This forecast is ahead of the Reserve Bank's 1,5% growth estimate and the 1,2% forecast by the International Monetary Fund, and would be the highest for rate of growth in many years, but a sharp rise in business and investor confidence since the establishment of a Government of National Unity (GNU) in June suggests that it is quite possible."

The increase in confidence, he says, is most evident in the strengthening of the Rand from almost R19 to the US dollar last year to a projected R17,60 to the dollar by the end of 2024, and in the current investor scramble for SA government bonds, which has resulted in at least R50bn worth of inflows this year. SA equities have also rebounded to record highs in the past three months.  

"It is also reflected in the results of the latest Old Mutual Savings & Investment survey, which show that 68% of respondents (who are employed South Africans aged 18 to 65 and earning a monthly income of more than R8000) believe that their financial situation will improve in the next six months. The survey also found that the percentage of working South Africans with confidence in the country's economy had increased from 27% last year to 36% this year."

In keeping with this, says Everitt, the Absa Homeowner Sentiment Index shows that overall consumer confidence in the property market has been trending upward for the past year and rose to 84% in the second quarter of this year from 78% in the same period of 2023.

"The buy sentiment showed an even bigger YOY improvement of 12%, with many of those currently renting but planning to buy soon noting that they had already saved enough to afford a deposit for a home.

"Now economic growth and the real estate industry are expected to get a further strong boost from further interest rates cuts over the next year, which will lower consumer repayments on all forms of debt, including home loans - and make it easier for prospective home buyers to qualify for new loans."

This will, he predicts, bring a large number of first-time buyers back into the market and start to drive property price increases that will be sustained by significant job creation over the next two to three years as massive capex projects currently in the planning stages are implemented. 

"Operation Vulindlela, an initiative between the Presidency and the National Treasury, has already generated an investment potential of R500bn, primarily focused on sustainable energy projects, water infrastructure upgrades, local government reforms and projects to fix South Africa's ports and rail network. 

"And the latest Nedbank Capital Expenditure report shows that the value of new projects announced during the first half of this year reached an annualised R793,7bn - a giant leap from R193,2bn in the same period of 2023 - with private sector plans notably accounting for around 26% of the total and again demonstrating improved investor confidence in SA."

The private sector projects include the R18bn Bankenveld District City development in Johannesburg, the R7bn development of the new Cape Winelands airport, and the R4bn upgrade of the Volkswagen manufacturing plant at Kariega. They also include several sustainable energy, mining and retail expansion projects, and follow the R4,2bn upgrade of the BMW plant in Rosslyn announced late last year.

In addition, RSA.Aero recently announced that it has begun the takeover of the Plettenberg Bay airport from the Bitou Municipality in preparation for a multibillion rand upgrade, and the Gauteng Provincial Government announced that is it finalising plans to begin a R120bn expansion of the Gautrain network in 2026.

Everitt notes that each project of this kind has the potential not only to improve the quality of life for local residents but also to generate scores of new permanent jobs that will enable more South Africans to realise their dreams of becoming home-owners, especially if inflation and interest rates continue to fall.

"This will increase already-high demand at the lower end of the market and will create opportunities for existing owners to sell and move on to their next homes, with a concomitant increase in home prices across the board, as we saw in 2020 and 2021 when first-time buyers flooded into the market in response to very low interest rates.    

"Consequently, our advice to home buyers and real estate investors is to purchase their next properties as soon as possible and maximise the potential for asset value growth in the coming market upturn."

Issued by Chas Everitt International

For more information

Call Berry Everitt on 

+27 82 441 3601

Or visit www.chaseveritt.co.za