Factors affecting the property market

A number of factors affect markets. Property is a good predictor of the economic outlook of any country. 

Property development can provide a positive prediction that the economy is on an upward trend, while emptying office and retail spaces, as we witnessed during COVID-19 is an indicator of an economic slump. Problems that faced many residential landlords, too, would have indicated a downward trend.

With the pandemic, hopefully, now receding into the past, property managers, WatchProp, is upbeat. MD, Craig Coetzee, says that while the market is emerging from the challenges of the past 24 months, indicators point to a property boom. The country is getting back to work, he says. There are signs of retail and industrial spaces filling again while office space is still adapting to the new way of working. 

Here property owners are waiting to see what this new way looks like, with a work-from-home philosophy now playing a role on what the demand for office space will be.

Coetzee says that some factors that impact the property sector include:

Interest rate

Having reached the bottom of the interest rate cycle, South Africa has started on an upward repo rate trend. While the rate is still sitting in an attractive range for property buyers, budgets will come under pressure as the rate continues its climb in 2022 and 2023. But, says Coetzee, the market is showing signs of a comeback while the lending climate is favourable. It's very much a buyers' market with banks having relaxed their lending criteria to encourage market stability.

Economy

We have seen how a global downturn in the economy affects economies across the world with the COVID-19 pandemic causing job losses on a global scale. In South Africa the impact on the economy threatened the outlook on the local market. Properties emptied, retail stores struggled to pay rent and consumers were stretched as they saw salaries reduced with many workforces downsizing.

Standard and Poor's recently, despite the economic downturn over the pandemic period, lifted our investment status up a notch to positive from stable, a welcome move. However, its credit rating of the South African Government remains "junk".

Inflation will still impact the economy going forward as the world starts to see pressure on energy and food prices, largely, resulting from the Russia/Ukraine war.

Disasters

Pandemic aside, South Africa also faced disasters that threatened our economy. The KZN floods devastated the region's economy, followed by a second wave of flooding.

And, while not natural a disaster, the riots experienced in the same region had a far-reaching impact on our economic outlook.

Affordability

A key driver of property is affordability. The reduction in the repo rate prompted affordability of home ownership over rental. The expected rise in the repo rate over the next few Monetary Policy Committee meetings aside, the bank lending rate will still remain below pre-pandemic levels for some time.

Funding

As in most cases, funding is required. From homes to offices, industrial and commercial spaces and retail stores, banks or investors are called on to assist with the capital required to occupy these spaces.

With the current lending climate, buyers are in a favourable position to obtain the necessary funding, but they should budget wisely to take into account potential repo rate increases looming.

Number of potential tenants

Always a factor is supply and demand and quality and number of tenants. While housing shortages remain a problem in South Africa, the commercial, industrial, retail and office spaces have also suffered from the extended lockdown period.

Landlords now face a race to fill spaces emptied by tenants who, simply, had to terminate leases. This is where managing agents play a critical role in restoring the balance of space availability and qualified tenants.

Supply may outstrip demand for a short period, but as the country gets back to work, spaces will fill again and those tenants who do not take up their opportunities may find themselves at the back of a queue.

New developments

There is certainly a plethora of new developments currently underway both in the residential and commercial sectors which will bring more stock into the market, giving home buyers and potential tenants, commercial and residential, a choice of space.

Coetzee says that while many factors affect markets, property managers keep their eyes fixed on all things property to ensure that the interests of landlords are top of mind. With so many forces that pull markets up or down, property management remains critical to keep investment value on an upward trend. 

WatchProp can be contacted on 021 914 6660 or email info@watchprop.co.za.