Consumer shift from renting to owning may have reached a climax

The latest FNB Property Barometer suggests the local ‘renting vs buying a home’ trend may have peaked in South Africa. Our general manager of property portfolio and planning, Sean Johnston, discusses the effects on the property industry.

Renting vs owning a home

“This is reflected in the stabilising flat vacancy rates and bottoming rental inflation. These shifts played a vital role in supporting home buying activity in 1H20 and into 2021, mostly in middle-priced segments,” said Siphamandla Mkhwanazi, a senior property economist from FNB.

For property investors, this could yield promising returns on their portfolio according to Johnston. This is due to the fact that there could be more demand from tenants in the future.

He explained that as an end user, the benefits of renting outweigh those of owning property.

“Buying a property has a lot more responsibility as you are liable for the outstanding bond, utilities, rates and levies. As a tenant, you are liable for paying the rental amount and the use of water and electricity and this can be much lower than paying all the aforementioned expenses,” he elaborated.

Homeowners have to consider maintenance costs while a tenant has the freedom to relocate after their lease has expired. Therefore,  the incentive to buy property subsides and the rental market will fill again said Johnston.

“For this reason, this is why there will always be a rental market in South Africa. Once tenants begin to enter the market, rental prices will increase again.”

Annual house price growth

 

The FNB Property Barometer recorded the average house price growth at 3.5% for the third quarter of 2021. In contrast, this has fallen from the 4.8% recorded in the year’s second quarter.

“The slowing pace of price growth coincides with the weakening market strength index as demand growth continues to slow relative to supply,” said Mkhwanazi.

However, he noted that these data points still exceed pre-pandemic, 2019 levels.

“Market activity is still benefiting from lower interest rates, albeit to a lessening extent, as well as the pandemic-induced shifts in consumer behaviour, which leant in favour of homeownership,” he said.

Effect of July riots

 

A running theme from this report determined the effect of the riots seen in July. Slow activity was particularly noticeable in Kwazulu-Natal where most of the riots took place.

Meanwhile, 51% of estate agents surveyed in Kwazulu-Natal were satisfied with prevailing market conditions. In contrast, 71% of estate agents were satisfied with prevailing market conditions as a national average.

“The indicator remains upbeat, particularly in the Western Cape, presumably in line with activity that is still above pre-pandemic levels and on anticipation that unrest in KZN would benefit the Western Cape,” said Mkhwanazi.

Johnston, however, believes this trend is rather reflective of the province’s natural beauty and quality of life.

“The property prices have therefore always been more expensive, particularly in upmarket suburbs such as Camps Bay, Llandudno and Constantia. The rioting in Kwazulu-Natal and Gauteng has impacted the GDP due to the drop in revenue on VAT,” he stated.

In addition, he does not believe the riots will affect property prices in the long-term.

“Due to the decrease in the prime lending rate, the residential buy-to-to-let market has seen minimal impact. This has resulted in a surge in property sales due to more homeowners qualifying for bonds. The rioting impacted commercial businesses and not the residential market so this has not had a big impact on property sales,” said Johnston.

 

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