Is property a good investment in South Africa?

The rise in inflation globally has forced many central banks in leading economies to increase interest rates. Locally, the South African Reserve Bank has raised rates to 15 year highs since it began tightening policy in November 2021.

The elevated rates have taken their toll on the property market, weakening demand and leaving many potential buyers nervous fearing higher bond repayments.

But rates don't stay high forever, and with the possibility of two interest rate cuts, is it time to reconsider property as an investment?

Keshnie July, lending product owner at Investec, Hayley Ivins-Downes, Managing Executive for Real Estate at Lightstone Property, and Tsholofelo Mokoma, property practitioner at RE/MAX Horizon, share their insights on this pertinent topic.

For Keshnie it is important to take stock of the last few years. In the pandemic, we saw people under strain and selling their homes. Families started living together to combine income and expenses. And then interest rates started increasing.

“Property is a good investment, as it will appreciate over time, allowing you to build wealth in the long term, Keshnie comments. “Even in tough times we know it's a buyer's market, which means there are more properties than there are buyers. This places more power in the buyer's hands. They're able to negotiate better. Sellers are more inclined to drop prices in these conditions to sell their property.”

She adds, “Investors can benefit from buying at lower prices. Due to market conditions, property sales and property growth has slowed down, which means investors buying now can buy in anticipation of interest rates dropping and property growth increasing. They will enjoy the appreciation of the property as the market turns.”

She states that market trends saw a high demand for rentals. “As a result, the supply of these rentals are under pressure. Tenants are prioritising price over security and size, and fewer people are buying homes to own. For investors, the silver lining is that if you buy now, and the market turns, you will reap those rewards.”

Tsholofelo remarks that when investing in property, location is crucial, as property is a significant investment. “There are multiple factors to consider. Are you in an area where there are thriving businesses? Are there job opportunities? Is the market active? What future developments are anticipated? On the other hand, what is the infrastructure like? How are the roads?”

Hayley adds that Gauteng is definitely still a buyer's market. In KwaZulu-Natal it has been interesting – from a political and environmental point of view. Fewer tourists are visiting the province. “There's been quite a drop in terms of appetite for the province, but they always say that when people are scared, it's when you need to invest. That's where the opportunity is.”

The Western Cape has obviously had a stream of buyers and this has increased property prices to a level that's higher than it was before Covid. “A four bedroom property in Johannesburg or Pretoria, is probably going to be a two or three bedroom in Western Cape,” she says.

“Life happens,” states Tsholofelo. “People have debt. There's divorce. There's death. So there's a whole lot of reasons why people would want to make a change. In a pressurised economic environment, people will obviously look for opportunities to relieve themselves of debt.” In the industry there is a move towards buying traditional rental properties as investments. It offers more stability and predictability.

Keshnie adds that the market is noticing more arrears in the home loan market than seen historically. “There's a high proportion of first time arrears. If these trends continue, it means that households are still under pressure. We expect to see the demand for rentals as opposed to home ownership to continue. We will also see more generations living together on the same property.”

Tsholofelo says that if you're looking for growth, value, appreciation, wealth creation and leaving a legacy, property is a great investment.

On the other hand, if you want to make money quickly, Hayley suggests that you consider developments where you can buy off plan and sell the property quite quickly in a couple of years.