For Somerset West, as with most property markets in South Africa, 2020 kicked off on a difficult note. Rising petrol, food and electricity prices, paired with a decelerating economy, left consumers struggling to pay their existing debts, let alone take on new bond repayments.
When news of Covid-19 broke and lockdown was announced, property experts all but gave up hope of any kind of short-term market recovery. However, according to Schalk van der Merwe, franchisee for the Rawson Properties Helderberg Group, the year still had some big surprises in store.
“Somerset West began 2020 with 1686 properties on the market,” he says. “That’s 287 more properties than sold during the whole of 2019. When lockdown was announced, we were extremely concerned about how the already slow market would respond. Would we manage to recover our sales momentum with only 10 months of the year to work with, or would we be left with even more depressed market activity like many other parts of the world?”
While home prices were not actively falling, Van der Merwe says price growth in the area had been slow for some time. With lockdown in place, the situation seemed dire, but quick action by the South African Reserve Bank presented an unexpected light at the end of the tunnel.
“The SARB’s 2.25% total interest rate cuts could not have come at a better time,” says Van der Merwe. “All of sudden, buying became as cost-effective – or even cheaper – than renting, and first-time buyers began to flood onto the market.”
Somerset West – an area that typically enjoys a fairly even spread of buyers in all age groups – began to see a clear predominance of purchasers under 50. Stock levels started to drop, taking the edge off the oversupply, despite new listings joining the market every day.
“Somerset West has already had 752 property sales registered this year,” says Van der Merwe. “We expect to see those figures overtake 2019’s total of 1399 before year-end, as the Deeds Office works through the backlog caused by Covid-19 challenges.
“Stock levels are also 7.4% lower than in January,” he continues, “which could see price growth rekindle towards the end of 2021 if current trends persist.”
Of the sales registered in Somerset West so far, 37% are freehold and 63% are in sectional title schemes or gated villages. 75% of all sales are below R3-million – no surprise given the number of first-time buyers on the market.
“The entry-level market is likely to see a faster recovery thanks to high levels of activity,” says Van der Merwe, “but 45% of current stock is over the R3-million mark, and this will be slower in regaining momentum.”
This is just one of the factors contributing to the ongoing price pressure being experienced by sellers.
“The increase in activity is very encouraging,” says Van der Merwe, “but it’s not enough to instantly restart major growth after the four years of price stabilisation that we’ve had in Somerset West. Ongoing oversupply – exacerbated by local developments like Balwin’s hitting the market – will continue to repress price growth in the short term. That said, developments like these are a good thing for the market in the long term, signalling strong investor confidence in future growth prospects.”
As for the immediate future, Van der Merwe says first-time buyers are likely to continue driving market activity into 2021. However, he believes they will be joined by a boost in foreign investment as our weak exchange rate presents irresistible opportunities to international travellers with stronger currencies.
“2020 surprised us all by turning into our best sales year since 2006,” says Van der Merwe. “All signs point towards that streak continuing well into 2021. This is not only positive for the property market, but also for our economy in general, as the property sector is a major contributor to South Africa’s fiscus and GDP.”
Those hoping to make the most of current market conditions are encouraged to contact Rawson Properties Helderberg for professional guidance.
“It’s not the easiest market to navigate at the moment, but there are great opportunities for both buyers and sellers,” says Van der Merwe. “Our goal for the new year is to continue empowering our clients to make the best possible property choices, no matter what surprises 2021 has in store.”