By Wynand Tromp, P.A.
According to historians, New Year’s Day has been celebrated for over four millennia. But this time, we had to dig really deep to find the good that came from 2020. On the other hand, we could talk for hours about what went wrong. However, to have this conversation is senseless; because it is clear that nobody was left unaffected by the absolute devastation that 2020 brought to this planet. Like a tsunami, the COVID-19 virus hit every shore, on every continent, leaving nothing but destruction in its wake.
At the end of 2020, were people from across the globe filled with excitement when the clock started counting down? Did they sing? Did they dance? Did they drink? Did they wish each other a ‘happy new year’? Were they even allowed to celebrate at all under strict lockdown regulations? Probably not.
Surely, most of us were cynical about what 2021 has to offer. Everyone knows that the tsunami has not passed yet. The new year is already getting off to a rough start. Perhaps this is still just the aftermath of the destruction. Perhaps this is an indication of what 2021 is going to bring. No one knows, unfortunately.
In the construction industry, this uncertainty is most visible. There are very few individuals willing to embark on risky construction projects, not knowing what the future holds. Very few individuals will at this stage risk putting shovel to soil by investing money in projects that might ruin them financially.
However, it could be expected that many local and foreign investors, including property developers and big corporates, should be considering their options and analyzing opportunities in the South African property market. The weak Rand also presents foreign property investors, from leading economies, opportunities to buy into the local market, with returns not easily achievable in developed economies.
“Can we afford to move into a new office space?”
“Will I get tenants should we start construction of this office building now?”
“I know it’s a buyers’ market now, but if I develop this residential block, will I even be making a profit from the sales of the units?”
Strategic thinking is required
Uncertainty is everywhere. We need to bury COVID-19 once and for all before anyone will start spreading their wings in an attempt to fly again. Strategic thinking is required. Everyone should be asking themselves, “Where do I want to be in three years, and what do I have to do now to achieve this goal?”
Peter Drucker famously said that the greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.
However, something noteworthy has been happening over the past couple of months. With the lowered interest rate and the weakened Rand, investment has increased significantly. Is this perhaps the proverbial light at the end of the tunnel that we have all been praying for?
They say that when you’re at your lowest, the only way you can go is up. This seems to be the current state of affairs in South Africa, and all things considered, this is good news for everyone in the construction sector, but also for our economy. Interest rates are at the lowest they’ve been in years. It is without a doubt a buyer’s market. Anyone willing to take a risk and think strategically at this point is likely to strike gold. To explain this concept further, let’s sketch a scenario…
A foreign investor searches for property in Cape Town to develop – regardless of the risks involved. He comes across a dilapidated apartment building in Woodstock, and purchases the property at a steal as the seller has become increasingly desperate to shed some of his financial weight. Foreign lending rates are at an all-time low of around 1% in developed economies. This places the foreign investor in a perfect position to invest in the South African property market. The low interest rate in South Africa on the other hand, also creates a favorable investment climate for local investors. This gives the investor the cash flow and the time to commission an architect to finalize the design and to get the required planning permissions.
Construction can realistically only commence about two to four years from the date of purchase. At the lower interest rate, and the duration of the planning permission, the property is bound to be worth more than what was paid for it, even before construction has commenced. After two years of construction, the property market will in all probability have recovered, so unit prices will have increased dramatically. The investor could be looking at great financial gains over an approximate five to seven-year period.
This is one of many scenarios, relating to the high-density residential market. There are many more in all other sectors in the construction industry. The commercial and industrial sectors are just as affected by the current economic climate in South Africa.
Record residential property sales and rentals
With regards to residential property sales and rentals, Daphney Klopper, franchisee with Rawson Parklands, Table View and Atlantis in Cape Town says: “Rawson has had record sales since lockdown restrictions were lifted. The reasons are many and varied – the low interest rates and built up lockdown demand. In addition, many are moving to Cape Town from Gauteng, KZN and other provinces. Others are looking at amalgamating households and are thus looking for accommodation with attached flatlets and flexible layouts.
“Then there are those looking at smaller, more manageable premises. Interestingly, these folk are not always looking for a property of less value than what they are selling for. Many are looking at smaller but better homes, with less maintenance requirements.”
Klopper says that although there has been an economic impact as a result of COVID-19, they have not seen many distressed sales. Marketing prices have not decreased, depending of course, on price bands. Higher priced properties are correcting what were previously inflated prices. Entry level properties are still showing price growth. According to Klopper, this year will see more properties on the market as a result of financial implications; however, she encourages sellers to ensure that they price their homes correctly to avoid unnecessary price reductions as a result of a property becoming stale on the market.
“Our area is particularly popular as a result of the wonderful coastline, mountain views and fantastic schools and amenities. Properties vary from entry level apartments to family houses and luxury properties. The growth and affordability are particularly appealing for buyers. In the property industry those who are re-inventing themselves will survive. Those who look to transformation within their own business instead of waiting for the industry to transform will lead,” says Klopper.
She did express some concern with regard the shortage of affordable housing in South Africa. She says that we have to, over the coming years, construct and sell living units that are needed, and not merely wanted.
“If we do not place focus on affordable housing, we will merely contribute to the economy, as opposed to assisting in the building of our country”.
The year is 2021. We may be left on our knees by the destruction wrought by 2020. We now have nowhere else to go, but up. Maybe not today. Maybe not tomorrow. Maybe not this month… but soon. Regardless of what happened last year, 2021 will be better.
I hope the new year has started well for all readers.