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All South African provinces showing a surge in infections
Two weeks ago, it was reported that Covid-19 cases had increased by 46 per cent, with all provinces experiencing dramatic rises. Covid-19 related deaths also rose by 18 per cent. Ministers are at odds with how to limit the impact, as curfews and shutdowns were hugely damaging to South Africa’s economy. In 2020 South Africa’s economy contracted the most in a century, partly due to the strict lockdown that was imposed which even limited the sale of alcohol and cigarettes.
Now, South Africa is teetering on the edge of a third wave. According to John Hopkins Bloomberg School of Public Health, the positive test rate in South Africa has hovered close to or above the 5% threshold that is considered too high. If this rate is sustained, President Cyril Ramaphosa will have to reconsider introducing new lockdown measures which could impact economic recovery.
Although experts are predicting that a third wave may be less severe, there are concerns that estimations may not have considered the impact variants of the virus could have, especially the more infectious versions detected in England and India. This issue is compounded further by the fact that South Africa’s rollout of the vaccine has been sluggish. Last month the country paused the rollout of the Johnson & Johnson vaccine on the recommendation of the US federal health agencies due to concerns of rare cases of blood clots in combination with low platelet counts. This was a major set back as the Johnson & Johnson vaccine is the only one being used in the country.
According to a study conducted by Johnson & Johnson, as of 12th May 2021 only 430,730 healthcare workers have been vaccinated. The slow rollout has left much of the population unprotected which could further influence the government to impose strict lockdowns to safeguard the country.
Things are looking a little more hopeful though, the Pfizer-Biotech version of the vaccine will also be rolled out alongside the reintroduction of the Johnson & Johnson vaccine. Recent reports have suggested that in the first four days of the phase two rollout alone 117,000 people were vaccinated.
How have lockdowns affected South Africa’s property market?
According to research by MRI Software, the lockdowns of last year did not affect the residential property sector as much as other property sectors. However, it was predicted that the effects may be longer lasting. It was assumed that last year many residents who were no longer earning were using their savings to pay rent, but that this money would soon run out. The analysis has proven largely to be correct, as data from Payprop suggest that 70% of property professionals and agents have made smaller increases to rent than they would have, and 77% report their tenants are in arrears.
The employment situation has made property as an investment in South Africa less attractive, because if many people are not paying their rents, returns are going to be poor. What is more, investors are barely seeing any capital growth from property, and from 2007 to 2019, house prices rose by about 57% but when adjusted for inflation, real prices fell by 18%. However, some parts of the Cape did experience soloid growth during that period, there has been significant pullback over the past 18 months.
If another strict lockdown is imposed, it is unlikely that those who are already out of work will find themselves in a better situation, and therefore they will continue to struggle to pay rent and landlords will either lose rental income or receive lower rental payments each month. Flat vacancies in South Africa stood at 11% in the third quarter of 2020 suggesting that people are finding it increasingly difficult to afford rent and are seeking alternative living arrangements.
In South Africa, the unemployment rate jumped to a record high in the fourth quarter of last year rising to 32.5% between October and December 2020.
How South Africa’s Coronavirus response compares with other countries
Comparatively, the UK has reported its highest job vacancy rate since the beginning of the pandemic. Between February – April there were 657,000 vacancies, up about 48,400 on the previous quarter. The unemployment rate also fell slightly to 4.8% in the three months to March, with the ONS suggesting these are early signs that the economy is recovering. This means that there will be tenants who are able to pay rent, and this allows for stable occupancy rates and good levels of rental income.
The UK also has been running a successful vaccination programme. Unlike South Africa, the UK has three vaccines approved for use: Pfizer-BioNTech, Oxford-AstraZeneca and Moderna. This has allowed flexibility in terms of what vaccine is offered to what age group to mitigate risk. Per 100 people, the UK ranks fourth having issued 91 vaccines (this refers to total number of doses given and not how many people have been vaccinated).
Where Jobs creation is focused on the digital economy – will see growth.
To stimulate recovery within the property market, the UK introduced a stamp duty holiday. The stamp duty holiday was introduced on the 8th July 2020 and was initially due to end on the 31st March 2021, but has been extended to the 30th June 2021. Between those periods, there will be no stamp duty applicable on properties worth up to R9.75m. The introduction and subsequent extension of the stamp duty holiday has caused many industry experts to revise upwards their house price predictions. Savills for example had predicted that house prices would remain flat through 2021 and have revised their prediction upwards to 4%, similarly Knight Frank also predicted that house prices would not rise and are now predicting a 5% increase in house prices this year.
Investments such as this property in central Newcastle could be attractive to those looking to access the UK property market. Investors can take advantage of both the stamp duty (transfer fees) holiday and off-plan discounts to make savings and maximise returns. Prices start from R2.86m for a one-bedroom apartment whereas the market price for the apartments is set at R3.18m. £100m is being poured into regenerating Newcastle’s city centre, with some focus on East Pilgrim Street. New offices, bars, restaurants, car parks and housing will replace disused buildings and wasteland. The North of Tyne Combined Authority has also secured funding to launch its £10m Digital Growth and Innovation Programme. Under the programme, money will be spent helping small and medium sized enterprises train their existing staff and new recruits, allowing for job creation and retention. The transformation of Newcastle’s city centre alongside the investment in the city’s digital enterprises will attract more professionals looking to live and work in the city. This will influence house prices as the area becomes more desirable and available property becomes scarce.
Whilst landlords in South Africa may struggle for the time being to achieve a good return on investment due to high unemployment, a rise in vacant properties and the number of tenants unable to pay rent, there is still opportunity to achieve good returns from the UK property market. Property investment in the UK can offer good levels of capital growth if the right property is chosen in the right area, and investors who act quickly can take advantage of the UK stamp duty (Transfer fees) holiday.
One Touch Property have been in the investment industry for over 11 years now, and using their UK property sourcing principles they find exclusive developments in areas of regeneration that can provide investors with good levels of capital growth and returns. Contact today to begin your investment journey or learn more by reading their UK property investment tips guide today.
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