The South African property market saw many ups and downs during 2015, with some investors making good purchases while other investors made bad ones.
Many factors and a series of events had an impact on the property market and the economy as a whole. These factors resulted in a slowdown in the growth of average house prices. A further slow down in the average house prices should be expected to continue well into the year.
As a property investor or an individual interested in entering the property sector, it’s important to know what’s ahead for the industry this year.
Difficulties in accessing finance
The home buying market which showed signs of slowing down last year looks likely to continue on the same downward trend. Lenders becoming more cautious and not offering borrowers 100% home loans will contribute immensely to the slowdown.
Lenders should continue offering bond applicants 90% to 95% loan to value (LTV), while requesting borrowers cover the balance as deposit. Financial institutions will look to minimize their exposure and request borrowers to also put up some of their money to finance the property purchase.
The rate of declined home loan applications will also continue to increase due to the cautious lending approach by lenders triggered by the weakening household income.
We will most likely see further interest rates hikes by the Reserve Bank. The increased rates will see many property owners being under pressure to meet their monthly home loan repayments.
This pressure will also be felt by new entrants into the property space who will find it increasingly difficult to afford property. Investors who have already invested in a number of properties will also feel the pinch of the rates hike and will look to compensate by increasing their rental charges, thereby sharing the burden with their tenants.
Accelerating rental market
Projections show that the rental market will continue to be a good investment option for investors as it was last year – affordability being one of the key factors driving the rental market together with the high monthly repayments for property owners.
Many prospective buyers may also want to delay their purchases and opt for renting rather than buying due to the hefty deposit and legal cost required for purchasing a property.
Property owners who cannot manage to pay the monthly loan repayments will also place their properties on the market for rental. However, landlords who will increase their monthly rent to compensate for the increased repayments run the risk of increased vacancy rates on their properties.
Increased property stocks
Property stocks in high demand affordable areas will also see an increase as a result of many property owners failing to meet their monthly payments to lenders.
With the interest rates rising, many property owners who didn’t make provision for the repayment hikes may look at putting the properties on the market for rental or for sale. This will result in an increase in property stocks as the year progresses – both for rental and buying.
Although the local economy might be going through a rough patch at the moment, property investors seem very optimistic about the property market and believe 2016 will see good growth.
However, property purchasers still need to conduct their due diligence and mitigate their risks by paying attention to critical investment factors such as the demand versus supply, the location of the property, and the type of property they are investing in.