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How the pandemic has affected the South African property market

Category Newsletter: Article

The first anniversary of COVID-19 arriving on our shores has come and gone, yet South Africa is still coming to terms with the pandemic's effect - and subsequent lockdowns - on the economy, our communities, and life in general. The property market, being one of the last but significant casualties of the pandemic and lockdown has to contend with economic uncertainty, among other things.

For property sales, 2020 was possibly one of the most sluggish years in recent history. The entire country experienced fewer sales volumes. The combination of hard lockdown and risk-averse home loan lending catapulted the downward trend. The Atlantic Seaboard and City Bowl was no exception.

The real effects of the pandemic on the property market

The Atlantic Seaboard, like many other regions that rely on tourism, had a challenging year. Several factors contributed, which we discuss below.

1. A decreased demand in property

The pandemic brought with it plenty of uncertainty. This uncertainty, coupled with the hard lockdown and other stringent restrictions, meant buyers are likely to be risk-averse, driving down demand. For sellers, this decrease in demand meant little room for negotiation, often resulting in pressure to sell to buyers at prices that aren't advantageous.

2. Increased supply

Toward the second half of 2020, many properties around the City Bowl and Atlantic Seaboard entered the market. This increased supply was due to three elements, including:

  • Residents emigrating

Many professionals who still had the opportunity to leave the country were making the most of it, emigrating to countries with fewer restrictions and more economic stability.

  • Homeowners relocating

As companies made long-term decisions to develop remote working infrastructure, employees relocated to reflect this freedom. A central location wasn't as advantageous if a daily commute would be unnecessary. Causing areas like Cape Town's southern suburbs to experience quite a substantial influx of buyers and tenants. Suburbs like Plumstead encountered renewed interest, reflected in both the property asking price and selling price increasing.

  • Trying to relieve the debt burden

As bank payment relief ended, homeowners had to begin repaying loans that in some instances hadn't recouped salaries or incomes due to shifting lockdown rules, forcing them to sell.

3. Shift in rental terms

The Atlantic Seaboard also experienced a unique set of issues. Known as a property investment hub with an exponential return due to foreign rental demand and short term stays facilitated by Airbnb, investors along the Atlantic Seaboard saw their rental income come to a grinding halt.

The lack of travel affected the short-stay market, forcing investors to migrate to long term rentals. Investors who made the move at the first sign of a lockdown benefited the most, as uncertainty caused tenants to lap up any inventory when more professionals started working remotely. However, those that waited had to contend with a growing - and often bloated - inventory.

On the rebound

It's not all doom and gloom for the City Bowl. Proving to be one of the most resilient areas, the City Bowl - including Gardens and the City Centre - have rebounded quickly. So far, sales prices have increased by 17% in Gardens, and the rental market is also on the incline. Many tenants realize they get similar amenities in suburbs like Gardens, Green Point, De Waterkant, and the City Centre as they would in Fresnaye, Sea Point, or Bantry Bay, but for far less.

Therefore, for investors, the City Bowl and Green Point provide excellent value. As these areas continue to experience lucrative sales figures and rental opportunities, appealing to younger professionals and remote workers.

We are still in the midst of a global pandemic. While other countries are rigorously vaccinating citizens to ensure herd immunity and increase economic activity, South Africa, which relies on both foreign investment and Cape Town that relies on tourism, can expect the effects of the pandemic to survive physical infections.

Newer variants are likely to make international buyers apprehensive about buying in the region. Therefore, in the next year, the Atlantic Seaboard and City Bowl will rely predominantly on local investors who see the area's potential.

Author: Coastal Property Group

Submitted 07 Apr 21 / Views 1369

Cape Town, Western Cape

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