Real estate has always been widely regarded as a fairly safe investment. Provided, that is, you let your money rest in your investment for several years, while properly maintaining and managing the property. In that manner, you could guarantee the growth of your initial outlay. Things are a little complicated these days as the South African real estate industry has taken some unpredictable turns. Investors may be wondering if investing in real estate is still a wise move in 2020 and beyond. The answer is both yes and no.
According to the Global Property Guide, South Africa’s house prices underwent a confusing change throughout 2019, which makes the outlook for 2020 slightly cautious. On the one hand, nominal property prices across the board increased by 3,96%. On the other, real prices declined by 0,51%. This means that, even though the selling prices of real estate are increasing, sellers are getting a diminished return on their initial investments.
Combined with the overall contraction of the South African economy in 2019, this doesn’t make property investment look particularly good in the coming year. The outlook, however, is somewhat more complicated than that. Especially when we take into account some of the trends that are likely to impact the South African real estate market in 2020 and beyond. Some of the factors which may play a role include:
Don’t Make Blanket Assumptions
Firstly, one can’t go according to blanket assumptions about the national real estate environment as a whole. Rather, it depends very much on where you invest. As a developing country, South Africa is experiencing significant urban expansion. This means that there is a steady demand for housing in and around the country’s urban hubs. This does not mean, however, that cities like Johannesburg, Durban and Cape Town will see massive significant increases in sales and rentals (and therefore, property values). Rather, what is beginning to happen is that nearby suburbs are starting to boom and develop into major centres in their own right. Consider the growth of Midrand near Johannesburg or the KZN North Coast from Umhlanga to Ballito, for example. These areas are likely to continue their boom in the coming year, while established prime real estate areas in the cities themselves may flatline or even decline, affecting prices in these places over the next few years.
The Effects of Expropriation Without Compensation
Secondly, the effects of legislative and macroeconomic change are still difficult to predict. Expropriation without compensation became a legal reality in 2019, however, we still don’t know how it will affect suburban residential properties, nor have we seen how it will be implemented in rural or peri-urban areas just yet.
The Effects of Changing Demographics
Thirdly, changing demographics, with regard to age, race, economic status and other factors, are likely to have an effect on the market. But again, we’re not sure exactly how this will be expressed in the sales and rentals of properties. Some areas will experience major influxes, while others see a decrease in the number of homeowners and residents.
In short, real estate is a safe investment, compared to the trade in securities, in the sense that you are purchasing a tangible asset whose value you can maintain and control to a certain extent through proper care and wise rental and/or improvement efforts. However, much like stocks, bonds and arbitrage, the market also carries certain risks from elements outside of our control. And, some of these are becoming more pronounced in the current and coming years than they have previously been. This will make the market somewhat less stable in the near future, but it remains a lucrative investment option for now. Investors can play the movements in demographics and urban expansion to their benefit. Also, while there remains a positive difference between the changes in real and nominal prices, the chances of profitable dealings in real estate are still good.
Jason Scholtz is the CEO of Envision Investments, and a leader in the property and strategic investments industry in South Africa. He is the founder of LiquidHub, a growing chain of shared workspaces set to revolutionise the way South Africans handle their workdays. For more tips and an insider’s look into the business and investment environments, including the South African real estate industry, be sure to get in touch, keep an eye on this blog or visit http://www.envisioninvestments.co.za/.