09 December 2022

It’s that time of year when property experts around the country are analysing key events and past trends and making forecasts for the year to come. We touched base with the Rawson property Group’s Sales, Rentals, Commercial and Finance specialists to hear their annual market roundups and expectations for 2023. 

Sales

Property sales entered 2022 still riding the wave of purchase activity driven by the pandemic’s record-low interest rates. This was unexpectedly curtailed by the sudden outbreak of war in Ukraine, throwing international supply chains into chaos and sending fuel prices skyrocketing.

“Inflation became a challenge, almost overnight,” says Tony Clarke, MD of the Rawson Property Group. “To minimise the fallout, the Reserve Bank was forced to implement a much steeper interest rate increase than had been forecast. This, together with rising costs of living, put a dent in buyer affordability.”

As a result, Clarke says the property market saw buyer activity slowing, alongside an increase in distressed sales and downscaling. This imbalance in supply and demand led to sluggish property price growth, with inland provinces facing additional pressure from ongoing semigration trends to coastal areas.

Clarke expects these trends to continue into 2023, with nominal price growth remaining positive, but subdued for some time to come.

“Qualified buyers will likely have their pick of properties in 2023,” he says. “Preferences are going to trend towards smaller, more affordable properties, with holiday home purchases slowing down. 

“Going into an election year, we’re also expecting a few surprises,” he adds. “In the long run, however, we’re fully confident that the property market will come up swinging on the other side.”

Rentals

Residential rentals started 2022 on the back foot, with vacancy rates recovering more slowly than expected after the pandemic. Rental escalations were also heavily subdued at around 1.93%, making it difficult for investors to achieve the necessary balance between occupancy and yield.

“We suspected fairly early on that things would improve over the course of the year,” says Jacqui Savage, National Rentals Manager for the Rawson Property Group. “Most first-time buyers hoping to capitalise on the low interest rates had already done so. Those still toying with the idea had less incentive to make the leap once interest rates started to rise.”

As expected, rising interest rates, together with escalating costs of living, soon added momentum to 2022’s previously sluggish rental market.

“What we didn’t expect was the rise in payment performance,” says Savage. “Some price brackets saw tenants in good standing exceeding their pre-COVID levels, which was extraordinary given the tough economic times.”

While good payment performance will hopefully carry through into 2023, Savage says achieving decent yields will remain difficult for investors in the new year.

“The rental market is stable, but high property prices and property running costs paired with modest rental inflation does make for a tricky balance,” says Savage. “Refocusing rental portfolios to tap into current trends can be helpful – something a lot easier to do with a rental expert on your side.”

Savage says the most desirable rental features at present are good locations, excellent security and fibre-readiness. Clean, contemporary spaces with indoor and outdoor areas are very popular. Family homes between R10k and R20k are so highly sought-after they’re often successfully tenanted within days.

Commercial

The commercial property market also faced extreme pressure during the pandemic. It entered 2022 with both office and retail markets struggling, although retail was showing signs of improvement. The industrial sector, on the other hand, was relatively well-placed with logistics performing particularly well.

“The office market definitely experienced the worst fallout from the pandemic,” says Craig Mott, Cape Town Regional Sales Manager for the Rawson Property Group. “The way businesses work has changed, plain and simple. That meant a lot of creativity and strategic thinking had to happen to recover performance in this market segment.”

Improved compliance and legal protections in lease documents, together with new lease structures, shorter terms, and more flexibility were just some of the solutions to arise. Their success was limited by external pressures, however, including rising interest rates, loadshedding and increasing municipal rates and services.

These factors will doubtless continue to impact commercial property’s performance in 2023, with some sectors weathering the pressure better than others.

“We’re expecting an ongoing oversupply of commercial office space,” says Mott, “but retail opportunities are looking up. Industrial properties are likely to stay ahead of the pack in terms of performance, but good existing supply means new opportunities in the space may be somewhat limited.”

Mott says those with an appetite for risk could still achieve excellent returns by buying up underperforming commercial properties and implementing creative vacancy-reducing solutions.

“Any period of change is ripe with opportunity for those willing and able to act,” he says.  

Finance

For property finance, 2022 was characterised by steeply rising interest rates eating into consumer affordability. This, says Leonard Kondowe, National Manager for Rawson Property Finance, created a competitive finance landscape with motivated lenders working hard to attract qualified applicants.

“Favourable home loan rates have become a popular way for banks to retain long-standing clients and attract new ones,” says Kondowe. “Consumers are playing their hands strategically, though, often moving banks just to get a better home loan. Some lenders are even offering reduced bond registration costs in order to secure qualified buyers.”

Affordability looks set to remain a challenge in 2023, with interest rates unlikely to decrease any time soon. That means banks will need to keep putting their best foot forward in order to secure qualified applicants from an increasingly limited pool.

For those hoping to join that pool of applicants in the New Year, Kondowe urges restraint over the festive season. 

“It’s a difficult time of year to save,” he says, “but anything you can do to reduce existing debt or lower your monthly expenses will play in your favour when you apply for a home loan.