South Africa’s property sectors are feeling the negative effects of local and global economic growth. This coupled with higher inflation and interest rates than were expected in the first quarter, people are left wondering whether this is a good time to purchase property.
The Rode’s Report on the property market in South Africa in the 2nd quarter of 2022 sheds some light on what is happening in the various property sectors. This report analyses and reports on the property sectors in the country and is used as a method to forecast the real estate market in South Africa.
Of the three major non-residential property sectors, the report indicates that the office market remains in the worst position. This may be due to oversupply characterized by lower rentals and high vacancy rates.
According to the report, gross market rentals for grade-A space declined by 1% year-on-year in nominal terms and on a national level. Since the middle of 2021, the decline in rentals has gradually eased. During this time, rentals fell by approximately 6% when compared to the previous year. This indicates that office rentals are stabilizing as more workers are returning to office spaces post-pandemic.
Cape Town has performed the best with nominal rentals rising above those of the previous year. Office rentals for other major cities either declined or remained unchanged. This indicates that the office market is still feeling the effects of the pandemic.
The industrial property market continued to improve during the 2nd quarter of 2022, according to the report. Due to low vacancies, the nominal rental growth for a space of at least 500m2 rising to 5.4% year-on-year. This growth rate can be compared with growth of 0.5% in 2020 and 2.2% in 2021.
Presumably, one of the key reasons for the industrial sector’s outperformance is as a result of the nature of developments. Superior performance of logistics due to the boom of online sales accelerated during the pandemic is also said to be a performance driver.
With nominal prices growing by approximately 4% year-on-year during the first five months of 2022, the housing market displayed a steady start. Based on FNB data, this was slower than the 4.2% growth for the whole of 2021. However, due to the sharp rise in the consumer inflation rate, house prices have fallen by approximately 2%.
In May of 2022, nominal house prices showed an increase of 3.7% year-on-year, slowing down from 4% just one month earlier, remaining well below the inflation rate of 6.5% in the same month.
The Rode’s residential survey data indicates that flat vacancy rates averaged 8.8% in the 2nd quarter of 2022. This was a decrease from 9.9% in the 1st quarter.
Due to increasing prices of materials, it has become significantly more expensive to maintain a home. Additionally, increased interest rates are also causing an increase in bond instalments.
Given the current difficult and worsening economic environment, it will be challenging for landlords to pass on cost increases to their tenants. The result is that there is little prospect of flat rental growth in the near future.
According to the report, listed property prices lost ground in the 2nd quarter of 2022. The SAPY index was at 15.6% lower at the end of June than at the end of December 2021. Presumably, the main reason for the pullback was the collective fear about lower growth in both the South African and the global economy as the World Bank and IMF downgraded their world-economy forecast for 2022.
Key reasons for this are believed to be rising interest rates and accelerating inflation. Both of these factors have been exacerbated by the Ukraine-Russia war which remains ongoing.
Navigating the property market can feel daunting and the prospect of purchasing property seems out of reach to most.
However, our bond originators offer specialized bond origination services in South Africa and can help you search for and obtain the finance you need to make your residential or commercial property dreams come true.
Contact us for more information.
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