Property market shift favours buyers | Strategies to protect long-term real estate investments
Category News
While we are not yet in a buyer's market in the traditional sense, the market is increasingly favouring buyers in many areas according to Samuel Seeff, chairman of the Seeff Property Group.
Meanwhile, Cobus Odendaal, CEO of Lew Geffen Sotheby's International Realty in Johannesburg and Randburg, says: "Globally we are seeing more political turmoil than we have in many decades and in South Africa, where there is growing uncertainty, investors are understandably cautious about taking the plunge, but real estate remains the most stable long-term investment and there are a number of savvy measures investors can take to safeguard their investments".
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Odendaal provides valuable advice and tips for real estate investors to safeguard long-term investment against political uncertainty in the following sections of this article.
Property market is turning, now favours buyers in most areas:
Seeff explains that, the stagnant economy and higher interest rates have affected the market to the extent that there are now fewer buyers. Transactions are taking longer to conclude and stock on the market is increasing in some areas, especially Gauteng and the inland regions.
Seeff says while there is no distress in the market as yet, we are seeing a rise in the number of people who are selling for financial reasons (now around 17% of all sales). More people are selling with the view to semigrate (around 14% of sellers) to the Cape and areas offering better services and amenities and only around 9% are selling to emigrate.
Two key elements now favour buyers in the market. The first, he says, is the continued favourable mortgage lending conditions which is still at the best level since the 2007/8 period when the National Credit Act was introduced. The price rate at 11.75%, while notably higher compared to the last two years, is still below the average of 15%-16%, he adds.
Bank data further shows that buyers are still able to find higher loan-to-value mortgages with first-time buyers still able to secure 100% bonds. Qualifying buyers can now even secure a slightly better interest rate as the banks continue competing for business in the home loans market. This is something we have not seen since pre-2007/8, he says.
A second important motivator for buyers is the flat price growth. House price growth has trended consistently downwards for the last 18-months. According to the FNB House Price Index, annual growth averaged 2.7% in April while, a year ago, it averaged 4% during April 2022.
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Even at the height of the Covid property boom, growth only reached around 6% on average, although there were some high demand areas which experienced exceptional growth. Comparatively, global markets experienced runaway price growth of 20%-30%.
Seeff says further that, outside of the greater Cape Town area, price growth has been muted for well over ten years now. The last time that FNB reported double digit house price growth was around 2007. This is largely in line with weaker economic trends seen over the last decade.
"The upside of this for buyers is that they are able to find property at prices notably lower than what it would have been had we seen stronger price growth. They can therefore find excellent value especially in areas such as Gauteng and other inland provinces. There has also been little movement in the super luxury prices above R208 million and that sector too offers excellent value," says Seeff.
The higher interest rate has put pressure on affordability, and Seeff says there are now fewer buyers in the market compared to the last two years. Consequently, the demand-supply curve is now shifting towards the supply side in many areas. We are also seeing higher stock volumes and a lengthening time-on-market which means that sellers asking prices are coming under pressure.
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"In a seller's market as we experienced in the mid-2020 to mid-2022 period, there is higher demand for properties compared to the available supply. As there are fewer properties and more buyers, there is competition among buyers. Properties sold faster and sellers could be more insistent on their prices," says Seeff.
While the turn in the market means that buyers must now budget for the higher interest rate, there are plenty of reasons to get into the market now. Seeff says it is always better to buy when the market is weak. Buyers can benefit from the flat prices and can potentially negotiate a better deal on the property.
Sellers on the other hand now need to be aware that with fewer buyers and plenty of stock to choose from, buyers are able to be picky and choosy. If you are looking to sell in the current market.
Strategies for real estate investors to safeguard long-term investment against political uncertainty:
Political turmoil can introduce a significant level of uncertainty and volatility into the real estate market and, as an investor, it's crucial to be prepared and proactive in mitigating the potential risks and safeguarding your long-term investments, according to Odendaal.
"From changes in government policies to shifts in economic conditions, political events have the potential to create volatility and disrupt the market.
"And whilst we are not the only country going through a political crisis, there is currently a significant level of uncertainty and investors are understandably cautious about making long-term investments.
"However, savvy property investors understand that measures can be taken to not only offset these challenges and safeguard their investments but also help them to make significant gains during such challenging times," says Odendaal.
Odendaal lists the following effective strategies that real estate investors can employ to offset the impact of political turmoil and ensure the resilience of their portfolio:
Diversification of investments:
One of the key strategies to mitigate the impact of political turmoil is to diversify your real estate portfolio. By investing in multiple locations, property types, and markets, you can spread your risk and reduce the vulnerability to any one political or economic event. Diversification allows you to take advantage of varying market conditions and can help offset potential losses caused by political instability in a specific region.
Thorough market research:
In times of political uncertainty, conducting thorough market research becomes even more critical. Stay informed about the political landscape, policy changes, and economic indicators in the regions where you have investments or are considering new opportunities. Understanding the potential impact of political events on the local real estate market will enable you to make more informed investment decisions and adjust your strategies accordingly.
Long-term investment approach:
Political turmoil often creates short-term market volatility, but real estate investments are generally considered long-term assets. Take a long-term view and avoid making knee-jerk reactions based solely on short-term political events. Stick to your investment strategy, focus on fundamental market factors, and capitalise on opportunities that may arise from market corrections or distressed properties.
Maintain strong cash flow and liquidity:
In uncertain times, it is crucial to maintain a healthy cash flow and liquidity position. Adequate reserves will help you weather temporary disruptions and capitalise on investment opportunities that may arise during periods of political turmoil. Keep a conservative debt-to-equity ratio, regularly evaluate your rental income, and anticipate potential changes in interest rates or lending policies. A strong financial position will provide flexibility and stability in uncertain markets.
Seek professional guidance:
During times of political turmoil, it becomes even more valuable to seek guidance from experienced real estate professionals and advisors. Real estate experts can offer insights into market trends, identify potential risks, and provide guidance on investment strategies tailored to the prevailing political climate and their expertise can help you make informed decisions and mitigate the impact of political uncertainties on your investments.
Assess regulatory and policy risks:
Political turmoil often brings about regulatory and policy changes that can impact real estate investments. Analyse the potential risks associated with these changes and evaluate their impact on your portfolio. Stay updated on tax regulations, zoning laws, rental regulations, and other policies that affect property ownership and profitability.
Consider seeking legal counsel or consult with industry experts to ensure compliance and identify strategies to adapt to changing regulatory environments.
Focus on stable markets and resilient assets:
During times of political uncertainty, prioritise stable markets that have demonstrated resilience in the face of past political turmoil. Look for regions with diversified economies, strong infrastructure, and favourable business climates. Invest in asset classes that have historically shown resilience, such as commercial properties in prime locations, rental properties with consistent demand, or real estate investment trusts (REITs) that offer diversification and professional management.
Consider real estate investment trusts (REITs):
If the direct ownership of real estate seems too vulnerable during periods of political turmoil, consider investing in Real Estate Investment Trusts (REITs). REITs offer a way to diversify your real estate holdings and benefit from professional management. They provide exposure to a broader range of properties and markets, allowing you to spread risk while potentially enjoying stable income streams.
Monitor and adapt:
Regularly monitor the political landscape and reassess your investment strategies as political situations evolve. Stay connected with local real estate professionals, industry experts, and relevant news sources to stay informed about any significant developments that may affect your investments.
Being proactive and adaptable will allow you to adjust your investment strategies promptly and make necessary changes to protect your long-term interests. And last but certainly not least, Odendaal says it's vital to stay calm and adapt: "While political turmoil may create uncertainty and even cause panic, it is essential to stay calm, maintain a rational perspective, and adapt to changing circumstances.
"Be prepared to adjust your investment strategy as the political landscape evolves. Consider alternative strategies, such as property renovations, repositioning."
Author: Property24