Ricochet News

South African Real Estate Poised for More Gains in 2020?

Jan 27, 2020
South African Real Estate Poised for More Gains in 2020?

The 2019 economic development in South Africa had been tepid, and the near-term outlook does not look promising due to the latest round of load shedding. Moody's, one of the largest rating agencies in the world, is expected to downgrade the country early in 2020, but should we expect a sluggish performance from the real estate market because of that?

Despite the modest economic development, there are a few factors that could support the real estate, mainly the demographic dividend of young people. First-time buyers had also been favored by low mortgage rates in 2019 and given the poor economic conditions, rates should remain low for the near future.

Tourism and high potential in peripheries are two other important factors and we would like to talk about each of them. It’s important to know, however, that a meaningful economic growth and a pick up in sentiment, combined with improvements in incomes and employment opportunities are necessary in order to further boost real estate in 2020.

Tourism – the most important factor?

Breathtaking landscapes, spectacular coastlines, vibrant cities, and interesting rural places make South Africa one of the top touristic destinations in the world. “Tourism could be a game-changer for South Africa in 2020, since an increasing number of tourists could support the building of entrepreneurial attractions, accommodations and plenty of other opportunities”, according to Ofir Eyal Bar, a real estate investor focused on South Africa among other markets.

A supportive factor for an increase in tourism in 2020 should be the reduced value of the rand, which had been affected by sluggish economic development. Since a year ago, there had been plenty of new flying routes that had contributed to a larger number of foreign visitors in the country.

One good example is the introduction of direct flights between London and Durban by British Airways. It contributed to an 11% increase in international passenger numbers in the year to September 2019, making the King Shaka International Airport South Africa’s fastest-growing international gateway, as bizcommunity.com had reported recently. All of these factors point towards another positive year for the South African tourism.

Youngsters buying homes

One of the steadiest supplies of new homeowners is the young population. Analysts expect 2020 to be a year when a continuous number of youngsters will purchase or rent a property. The central bank had cut rates in 2019 and that drove down mortgage rates. Combined with a few measures favoring first-time home buyers, this had been a major driver of the real estate market last year and should be the same in 2020.

Cape Town may continue to be at the core of real estate development, due to the latest introduction of micro-units in Cape town CBD and surrounding areas. A shift from freehold suburban homes to mixed-use precincts and shared third spaces can be easily noticed. Johannesburg, Durban, Pretoria, and Port Elizabeth are the main areas where the demand for more affordable homes continues to rise.

Peripheries more attractive now

Not just CBDs and central areas are expected to generate growth in 2020, but also peripheries of key nodes. The Northern Suburbs of Cape Town, George, Pretoria East, and the South Peninsula of Cape Town are benefiting from waiting lists in Southern Suburbs schools and some major infrastructure projects. The KZN Highway Corridor, Midrand, Gauteng East, and West are just a few of them.

The rise of entrepreneurs and digital assets is benefiting real estate. Now labeled as the “digital hub of Africa”, Cape Town is again on top of the list. However, surrounding areas like Woodstock and Stellenbosch don’t fall behind, since they have become the home of tech entrepreneurs and startups.

Major deals in 2019 – more in 2020?

Other than the residential sector of the real estate, big companies had continued to be active. Growthpoint Investec African Properties (GIAP) had acquired a 100% stake of RMB Westport Real Estate Development Fund Limited, a transaction that had been one of the major deals in December 2019.

Looking ahead, 2020 could have Cape Town at the core of the major real estate thanks to a series of infrastructure projects in the South, as well as the high touristic potential in the area. Property in the South Peninsula could continue to benefit from increasing demand and that will give incentives for real estate investors.

Summary

At the present time, economic expectations for emerging economies, including South Africa, are positive, since the consensus points towards a rebound of the global economy, a supportive factor for the real estate industry. Despite that, risks continue to wait on the horizon and geopolitics should remain in the center of attention in 2020. Although the expectations for real estate are positive, volatility is one of the keywords dominating the world at the present time.