Advice and Opinion Residential

Levelling up while levelling down: why a recession is the perfect time to buy

Property market

As the dust settles in South Africa, there is a renewed sense of optimism in the air. Experts are hopeful that the country is on the path to economic recovery but there is still some way to go. This has been hailed as our worst recession in ninety years with the economy expected to shrink by 7.2%.

The knock-on impact on the property sector is that buyer confidence is at an all-time low – something that cannot be attributed solely to the pandemic. John Loos, Economist at FNB Commercial Property Finance says South Africa has already gone through a recession and a mildly correcting property market prior to 2020 and Covid-19 merely made this recession deeper.

Yet despite the economic climate, experts have predicted a manageable impact to residential property which offers a strong argument in support of the fact that property – even in the most turbulent of environments – remains a relatively stable investment.

Jacques van Embden, Managing Director at urban property development firm Blok, says that if there is one thing that history has taught us, “it is that the economy will eventually recover and that property is one such asset class that shows stability over the long term.”

Internationally, CNBC has reported that property continues to offer investors a ‘safe haven’ in volatile climates as the risk-rewards rations remain reassuringly linear, while an article published in the Global Property Guide analysing the 2007 economic crisis, reiterated that residential property was generally far more stable than non-residential real estate – regardless of the country.

Property is extremely resilient, offering less volatility than the stock market” says van Embden. “Ultimately, people will always need a place to stay which provides buyers with a sense of security, even in times of turmoil.”

Given the prevailing conditions, South Africa finds itself in an unprecedented buyer’s market, thanks to the current supply-demand context. Under massive fiscal pressure, the onus falls on the Reserve Bank to assist South Africans. Banks are far more amenable to offering 100% home loans and with the recent slashing of the repo rate for the fourth time this year – from 4.25% to 3.5%, taking it to a fifty year low – the market is well-primed for when the recovery starts.

This makes it a highly attractive time to purchase” says van Embden “and buyers can expect fantastic value.”

Another advantage is that buyers will have an increased access to highly desirable locations which may have previously been unobtainable due to price.

Suburbs such as Sea Point, which remains perennially attractive from an investment point of view, are now within reach.”

Van Embden says that he is increasingly seeing buyers prioritise apartments located in sought-after areas over a larger square meterage, as these apartments show a sustained Return on Investment (ROI) over long periods.

Adding value to consumers through an increased emphasis on lifestyle – for example, an attractive neighbourhood and various serviced offerings – means that developers are able to keep apartments compact in order to improve affordability for buyers.”

Van Embden says that developers are looking at new ways to entice would-be investors and consumers can expect to see a great deal of innovation in this space.

These past few months have shown us the importance of agility, and that we need to be able to design products that respond well to market conditions.”

I would advise buyers to take advantage of the exciting opportunities this market affords. The gap between owning and renting has grown significantly smaller, and it makes sense to invest in a property that will show return for years to come,” he concludes.