A retrospective of the residential property market over the past few years should in my humble opinion be prefaced with the disclaimer that ‘this has not been a normal year’. But, when the last few years have all been abnormal in one way or another, does this not mean that abnormality is in fact the new normal?
Is the world as a whole in such a turbulent stage of human capital development that traditional macro-economic policies are not really able to manage economies as they did in the past? How far are we in South Africa from using blockchain technology to facilitate the purchase and sale of residential property? How are we going to deal with that purchaser who wishes to acquire a home using bitcoin? These questions are outside my particular area of knowledge at this time, but it does make me wonder to what extent we can reliably predict what the future holds.
South Africa has experienced significant levels of turbulence over the past five years. We have had to deal with corruption at a government level such as never experienced before. We had a period where we were unsure as to whether the ruling party would be able to put its house in order and elect a new President, one who would make it his primary objective to ensure that state capture and corruption came to an end. Then we were hit with the dreaded Covid-19 pandemic.
All of the above events have had a real and negative effect on the economy. An economy is only able to grow when it is effectively balanced; when the income generated is sufficient to meet the expenditure requirements. When there are going to be known revenue shortfalls, it is normally possible for any economy to balance its books by borrowing that which it requires to meet its expenditure requirements, as long as the expenditure in question generates future economic activity, and in turn revenue.
When revenue is misappropriated, stolen, or lost through an unexpected, unusual event, that revenue is lost forever, and cannot be easily replaced by borrowing money in the debt capital markets. This is what South Africa has had to endure over the past five years or so. We have lost revenue, and critically we borrowed money in the past, thinking that revenue would be there to cover the repayments.
Is it therefore any wonder that the property market has experienced levels of stress over the past five years? But wait, I hear you saying, other commentators are saying the market is good; look how much we have sold. Yes, there has been an increase in sales volumes, but these sales have been heavily skewed in favour of the lower end of the market. This has been caused in part by reductions in interest rates making it easier for homeowners to enter the market. In addition, our population continues to grow, which means that more estates are developed and more complexes are built, but again, from a price perspective these are heavily weighted in favour of the lower end of the market.
Looking at the total sales values as interpreted by Fine & Country from figures supplied by Lightstone, we have generally seen positive movements in the value of annual sales from 2016 to 2017, but thereafter from 2018 to 2020, with only a few exceptions, sales values in the coastal regions from Rooiels to Gansbaai have declined.
Hermanus increased by 10% (year on year) in 2017, but reduced by 11%, 31%, and 12% (year on year) in 2018, 2019, and 2020 respectively. Arabella and Kleinmond returned results of 15% and 14% growth in 2017 and 2018, but declined by 16% in each of the years 2019 and 2020. The same general trend of increase in 2017, followed by declines for 2018, 2019 and 2020 is evident for Rooiels, Pringle Bay, Betty’s Bay, Gansbaai, Franskraal and Pearly Beach.
The positive news for 2021 is that although we are undoubtedly still in a period of economic recession, the negative trends in the residential property market started to reverse during 2020, despite the year not being a full period of trading. Assuming this trend continues into 2021 – and at this time there is no reason to assume that it will not – the property market should show levels of growth during the next year.
This does not mean that property prices will necessarily increase, but it does mean that more buyers and sellers will be prepared to enter the market. Certainty as to the future outlook, even if it is negative in the short term, still allows for investment to increase, whereas uncertainty or a lack of clarity has a more negative effect on the market in general.
In summary, therefore, even though the economic outlook is negative in principle, because this is an expected result, the property market is likely to show increased activity during 2021 when compared to the previous years.