What to expect from the property market in South Africa in 2022 – and where to buy

We are expecting to see marginal interest rate increases during the course of 2022, and economists are predicting that we will not see pre-Covid interest rates for several years. This leaves a favourable environment for buyers and property investors alike, says Paul Stevens, CEO of Just Property.

Context is important when considering the impact of increases in interest rates on people’s appetite for buying, he said.

“It’s not as scary as some may think or make it out to be: the increase of the repo rate by 25 basis points brings the base home loan interest rate to 7.25%. In practical terms, that means an extra monthly cost of R151 on an R1 million bond and an extra R452 per month on a R3 million bond.

“Due to this increase, we are expecting the sales market we have been trading in to start to slow down.”

He pointed to an emerging middle class, particularly in cities like Johannesburg and Pretoria, combined with a desire to leave a legacy that serves the property sales market well.

“As long as clients are showing that affordability is there, the banks will be willing to lend even with further possible rate increases in the coming year. That said, there does appear to be a slow down of bank approvals,” Stevens pointed out.

Investment opportunities for 2022

It takes time to recover financially and, nationally, nominal house prices increased by 3% year on year in September 2021, slowing gradually from the pandemic peak of 5.1% in April 2021, according to FNB data, he said. “We expect this same sluggishness in 2022.”

Stevens said there is real growth potential for landlords who invest in systems and properties linked to sustainability –  ensuring the availability of water and the production of energy.

In terms of areas, Stevens recommends focusing on coastal cities and towns. “These are the areas that have seen better performance from a property value perspective, and demand remains strong due to many people semigrating to the coast.”

For good opportunities to invest, look to:

• The smaller towns near Cape Town like Hermanus, Onrus and Kleinmond to the east, or Langebaan and St Helena up the west coast.
• The Garden Route areas of George, Mossel Bay, Knysna, Plett have also seen great growth, with many people relocating to these towns.
• In the Eastern Cape, Port Elizabeth, Jeffrey’s Bay and St Francis Bay are enjoying unprecedented growth in numbers of people relocating and looking for that coastal quality of life.

Property franchising is another investment opportunity for hard-working, dynamic and service-oriented entrepreneurs, he said.

A correction is due

This past year South Africa has seen an average property price increase of 4.7%, the property expert said, citing Lightstone data. “Where SA property prices escalated disproportionately as a result of Covid lockdown restrictions and the lifestyle changes we saw in 2021, we do expect corrections.”

“While the more affordable properties will still see good growth this coming year, we are expecting to see very slow to no growth in the upper segment of the market.”

Ongoing demand for affordable housing

A shortage of affordable housing from both a rental and sales perspective is a reality in South Africa, said Stevens. “The average selling price of properties registered in the Deeds Office in 2021 so far is R990,000.

“And Michelle Dickens of TPN reports that 50% of renters are in the R7,000 – R12,000 per month bracket. Taking this into account, there is going to be an ongoing demand for affordable housing to be built.”

He said that in 2022, affordable properties will still see good growth despite job insecurity, poor credit profiles and the increasing cost of living.

Fewer tenants are in arrears

The good news for landlords, said Stevens, is that there is now a smaller percentage of tenants in arrears than in the first quarter of 2020.

According to the PayProp Q3 report, rent has only increased by between 0.1 and 0.2%, while inflation sits at around 5%. The Western Cape and Mpumalanga have outperformed other provinces with a 3.5% and 2.5% increase respectively.

“The biggest concern for the coming year is the weakening economy. We have just seen a massive increase in the fuel price, which is going to lead to further inflationary pressures. Consumers are battling to make ends meet.”

Stevens said that the rental market is going to remain under pressure for much of 2022. “Large numbers of tenant applicants are not qualifying due to their weak credit scores, and I think that this is going to get worse. We expect good tenants to remain where they are, as many of them did in 2021.”

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