COVID-19 continues to spread across South Africa and up until now, there are more than 196k cases found. The country went on lockdown since March, but just recently, the government had started to ease restrictions to revive economic activity. I’m Ofir Eyal Bar, and as an experienced real estate investor in South Africa, I wish to give you a news brief on the impacts of the lockdown, what could it happen now that restrictions ease, and if this is the right time to invest in South Africa real estate.
South Africa real estate heavily impacted by the lockdown
Back in May, News24 reported more than 40,000 estate agents had been left without income since the March lockdown was put into place. Since the pandemic does not show any sign of stabilization yet, uncertainty in the real estate market is expected to persist, even though there had been some economic relief in the near term.
The 7-day average of COVID-19 infections is still above 8,000, a worrying sign for the next few months. Actions from the government are welcomed, but as a significant share of the people is still conservative with spending, the upside in the near term is limited for the real estate market.
Based on the current projections, the South African Reserve Bank (SARB) Monetary Policy Committee expects national GDP to contract by 7% this year, a major shock for the economy, larger than the one witnessed during the 2008 financial crisis. Aware of this potential development, the central bank had cut rates to 3.75%, the lowest since 1998, taking the prime commercial lending rate to 7.25%.
Real estate relief with reopening?
Lower mortgage rates combined with relief for the real estate sector will be enough to spur a V-shaped recovery? As financial markets continue to be confident this will be the most-likely scenario, institutions like the IMF (International Monetary Fund) had lowered their growth expectations for the year.
According to new regulations published on May 28th, real estate agents are back to work, being able to operate, except for the short-term home sharing, letting, leasing, and rental for leisure purposes. Businesses are permitted to function according to Alert Lever 3 and must comply with strict health protocols, social distancing measures, and a phased return to work to reduce the risks of infections.
This means we’re still far from getting back to the “normality” we have at the beginning of the year and thus, economic activity will take more than a year to reach the 2019 peak. And this brings us to the last and the most important question you’re all eager to find an answer to.
Is the right time to invest in real estate?
I must start by saying a real estate investor should always factor in the downside first and only then the upside potential. If we analyze the current situation in South Africa, the big picture is very complex. On one side we have lower interest rates which could encourage new buyers to step into the real estate market, propping up valuations.
And on the other, we continue to see elevated infections rates, poor economic activity that’s below what we saw in late 2019, as well as the risk to see restrictions back in place if the number of infections continues to spike. My opinion is that at this point investing in real estate comes with a lot of downsides and if you are looking to invest in the long run, more attractive valuations could be seen later this year.
Hope you’ve enjoyed this article and stay tuned for the next one! I’m Ofir Bar and same as you, I’m looking forward to seeing myself how the South Africa economy and real estate industry will continue to perform in the months ahead.