Property is regularly acknowledged as an important part of the economy, but few realise the extent to which real estate activity contributes to the South African GDP.
Recent estimates place this figure as high as R191bn, with a R46bn direct contribution to national revenue.
In light of the havoc that Covid-19 has wreaked on the South African economy, a contribution of this scale is nothing to be sneezed at. However, there are still a few hurdles to be faced for real estate to reach its full potential as a force for good on the country’s path to economic recovery.
Flood of new buyers
After a very difficult start to the year, we’ve been incredibly pleased and grateful for the flood of new buyers hitting the market post lockdown. Sales have hit record numbers in response to the South African Reserve Bank’s interest rate cuts, and this surge of activity looks set to continue well into the new year.
While this increased spending – and lending – will inject much-needed liquidity into the economy, it’s far from enough to turn the economic tide on its own. Thankfully, business and consumer confidence have both shown a significant uptick in recent weeks, suggesting other economic activity may be hitting its stride again, soon. In fact, GDP forecasts for 2021 have already been upgraded to 3.5% by the Centre for Risk Analysis (CRA) and 3.3% by the National Treasury.
Resurgence in foreign investment
We also expect to see a resurgence in foreign investment, adding its strength to this cycle as our weak exchange rate has made properties 20% to 30% cheaper for foreign buyers than the same time last year. It’s also unlikely that those prices are going to start their own recovery quite yet, which means high buyer activity should continue for some time to come.
While this is good news for investors in the short term, property price growth is essential for the long-term viability of the market. The main stumbling block at present is the oversupply of properties on the market.
This oversupply won’t last forever. Particularly with the levels of buyer activity we’re seeing at present, but it’s high enough that it will take some time to return to normal levels. That said, there are already certain properties in certain areas that are experiencing positive price growth as demand in their specific niche markets starts to overtake supply.
