Downscaling due to increasing financial burdens is fast becoming the most prominent reason for disposing of property in South Africa.
According to the FNB Property Barometer for January 2021, 20% of sellers sold their properties due to financial pressure by the fourth quarter of 2020.
Of these sellers, 27% are those with properties priced below R750,000, followed by those in the R750,000–R1.6m price bracket (20%).
Siphamandla Mkhwanazi, FNB senior economist says that the most recent peak in selling due to financial stress was seen in 2011, reaching 24% of the market.
“The highest recorded (since the inception of the survey) was during the global financial crisis (GFC), where such volumes were estimated to have accounted for around 30% of the market in Q3 2009.”
During the GFC period of between mid-2007 and early-2009, global financial markets and banking systems went through extreme stress.
Property investors feeling the pinch
It’s not just residential property owners who are under financial strain. The bank reports an increase in the number of corporates disposing of property assets to reduce cash flow and pressure on the balance sheets.
“Corporate property disposals are across the board, but more so in the R1.6m–R2.6m price bracket,” says Mkhwanazi.
He says that for now, evidence pointing to corporate sales is anecdotal. As a result, it would be impossible to quantify how much stock is in the market.
“These properties would be from corporate rental companies, small businesses with residential portfolios (sometimes leased to their employees), and state-owned enterprises,” points out Mkhwanazi.
Grant Smee, MD of Only Realty says that they are seeing an influx of Airbnb properties coming onto the long-term rental market, or for sale – especially in Cape Town.
“This is largely due to a lack of tourists who rent these properties, and lack of affordability by owners. In some instances, people are letting go of investments to free up equity held in the property, and to reduce their financial repayment commitments,” says Smee.
Many landlords are losing tenants who can no longer afford to pay rent. “Good tenants are taking advantage of record low interest rates and buying their own properties, leaving rental vacancies, and thus causing financial strain on the landlords,” points out Smee.
Reason for selling property by price
The following table indicates the reasons for selling in various price brackets.
|Downscaling due to financial pressure||20||27||20||19||16||16|
|Downscaling with life stage||21||18||20||23||24||24|
|Change in family structure||9||3||12||11||9||10|
|Moving to be closer to work or amenities||6||10||6||5||3||4|
Selling due to life stage, for example, growing families needing bigger space, or those retiring, accounted for 21% of total selling, with 24% of those disposing of properties priced between R2.6m–R3.6m.
“This reason for selling has been constant overtime, on average around 20% of the market, or 1 in 5 downscaling due to life stage,” according to Mkhwanazi.
Distressed property sales to hit all price bands
Forecasting on trends, Smee says we will see many buyers ‘scooping up’ distressed properties in 2021. These properties are listed on the market as homeowners struggle to keep up with bond repayments, and need help selling these homes.
“We expect to see a lot more distressed properties on auction in the coming months. In January we saw low levels of distressed properties but the momentum of the pandemic is set to take its toll this year,” says Smee.
He explains that these property sales are based around a lack of affordability and are bankruptcy driven by loss of employment or income.
“The reality is that we expect to see more stock increases across the various price bands, however, expect a dramatic surge in properties priced below R2m.”
According to Mkhwanazi, the number of distressed properties has been rising steadily since 2019, and the pandemic has accelerated the trend.
“In relative terms, these figures have not been as prominent as they were during the GFC. Interest rates are much lower now versus then, and lenders have devised various financial solutions to assist households, including payment holidays and loan restructuring.”
A payment holiday is an arrangement with the bank that a client takes three months’ from repaying their credit. However, the three missed payments will be paid at the end of the credit term.
“Payment holidays helped to prevent a massive stock supply, as households battled financial losses.”
Additionally, consumer indebtedness is better now compared to then, which gave consumers a little more room to navigate the situation.
“Pressure on household income is a combination of low wage growth and massive job losses. This has been building overtime, and Covid-19 has worsened the situation.”
To help save money, many people are moving in with friends and family, hence the rise in the co-living trend, says Smee.
Others have chosen to reduce their rental amounts by moving into more affordable lock-up-and-go micro-living spaces.
“We are seeing a surge in these micro-living and co-living developments in traditionally more expensive areas, specifically in Cape Town and Sandton.”
He says that property developers have created exciting developments such as the BlackBrick apartment/hotel (aparthotel), offering serviced short and long-term stays with essential facilities and services at affordable prices.
Other development include the Wex Living apartments, and The Capital Hotels & Apartments, as well as other mixed use developments, which cater for the live-work-play lifestyle that many individuals are choosing as an alternative to traditional sectional or full title living, adds Smee.
Edited by Gudrun Kaiser