Predictions for the UK and South African property market for the rest of 2021

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How will the property market perform in the UK and South Africa

A comparison of how the Coronavirus pandemic has affected the property market in the UK and South Africa. Which country has the better outlook?

The effect of the coronavirus pandemic in South Africa

The Coronavirus pandemic has impacted almost every country on the globe in some way. In South Africa for example, non-essential travel was halted which affected the tourism industry. Stay at home orders affected incoming-earning opportunities and indirectly the transport sector as fewer people were using public transport.  In terms of importing and exporting goods and services, the pandemic has affected roughly a third of South African businesses. This is on top of the human tragedy of the pandemic.

Compared to other countries, South Africa was at a particular disadvantage because it was already entering a recession. Restrictions and attempts to keep the population afloat put further pressure on the economy.

South Africa’s property market in 2021

With regards to the property market, a loss of jobs has meant that some tenants have been unable to pay rent, which has affected the buy-to-let market in South Africa as many properties have been left vacant. Like the UK, the pandemic has made potential buyers more discerning on where they choose to live, favouring larger houses in more remote areas over smaller properties in city centres.

Interest cuts introduced in 2020 continue to buoy the South African property market as it is making homeownership more accessible, particularly to young people. The FNB figures show that buyers under the age of 35 account for 43% of residential sales.

Over 2020 the South African property market outperformed predictions and prices rose by 3%. Prices were driven by pent-up demand and low interest rates, however there is concern that demand is waning and the market is losing momentum. House price growth fell by 0.5% from April to May from 4.6% to 4.1% and the number of mortgage applications declined, suggesting lower demand which in turn will depress house prices.

What is in store for the UK property market for the remainder of 2021?

The Coronavirus pandemic has had a profound effect on the UK property market throughout 2020 and 2021. Lockdowns have influenced where people have chosen to live, and government policies such as the stamp duty holiday and furlough scheme have impacted property prices and safeguarded job security. Now that both the stamp duty holiday and furlough scheme are coming to an end, and Britain begins to emerge from the pandemic, we give our predictions on what the property market will look like for the rest of 2021.

How has the UK property market performed so far in 2021?

The stamp duty holiday was introduced on the 8th July last year to stimulate the property market. All properties under £500,000 were exempt from stamp duty taxes. From June 2021 the threshold reduced to £250,000, and this will remain in place until September 2021 where stamp duty charges will return to normal.

As expected, property prices rose due to high demand from buyers looking to make savings on stamp duty before the deadline. Prices were also buoyed by pent-up demand from buyers who planned to move during the spring of 2020 but were delayed due to lockdown restrictions.

In March 2021, property sales reached a 16-year high as buyers looked to complete on sales before the end of the stamp duty holiday. Around 180,690 transactions were recorded that month, which is the most since records started in 2005. This coincided with house prices rising at the fastest annual rate in 17 years, according to Nationwide. House prices rose by 0.7% from May to June 2021, marking an annual increase of 13.4% – the highest since November 2004.

What is in store for the property market for the rest of 2021?

As the stamp duty holiday draws to a close, we believe that house price growth will begin to slow down. This was already the case in June 2021 according to Rightmove, where average house prices increased by just 0.8%. The slow down in June was associated with a lack of available properties on the market and record high prices which dampened buyer demand. As stamp duty returns to its original rate from October 2021, we predict that there will be less urgency to buy within the market.

The fundamentals of the UK property market remain the same, with a lack of house building affecting supply and demand. House prices have defied initial forecasts by rising throughout the first half of 2021 when many experts predicted a fall. We think that a lack of supply will underpin the strong performance of existing stock.

The UK’s successful rollout of the Coronavirus vaccine will also provide a big boost to the economy as things begin to return to normal and restrictions ease. The Bank of England has already projected an optimistic long-term outlook for the UK’s economic recovery, stating that GDP is expected to reach near pre-pandemic levels over the course of the year.

Mortgage availability to boost house prices

The housing market and the economy ae inextricably linked. For example, if the Bank of England sets low interest rates, it becomes cheaper for individuals to access credit. This means that mortgages are more widely available and increases the demand for property, which in turn pushes up prices. Conversely, higher interest rates and stricter lending criteria means that fewer people can obtain credit and lowers demand for housing, causing house prices to dip.

Currently, the Bank of England base rate is set at 0.1%. The base rate was lowered in March 2020 to keep the economy afloat in the wake of the Coronavirus pandemic, and despite being reviewed at regular internals over the last fifteen months, it has remained at 0.1%. It means that for those looking to obtain a mortgage, now is a favourable time to borrow. Furthermore, many mortgage lenders are adding more products to the market. For example, First Direct have a five-year fixed repayment mortgage at 80% LTV with rate of 2.19%. Similarly, RBS have a 2-year fixed repayment mortgage product at 60% LTV. Mortgage companies adding new products signals confidence within the housing market and economy in generic, perhaps down to the Bank of England’s previous predictions.

The low interest rate and increase in available mortgage products on the market should boost house prices – at least temporarily. If people can get access to credit, demand for housing will go up and subsequently house prices will rise.

Property investment opportunities for those looking to capitalise on low interest rates

For those looking to invest in property, now could be an ideal time. Borrowing on a low interest rate means that there is more potential for higher returns. Buying property through a company can also negate some taxes, as individuals would only pay corporate tax on income which stands at 20%. Those considering taking out a buy-to-let mortgage through a company should keep in mind that there are sometimes fewer products available.

One buy-to-let option that has significant potential for elevated returns is this Newcastle property investment. Completing in Q3 of 2022 and located in an area of regeneration, investors can buy one-bedroom apartments from R3.06m with discounted off-plan pricing. By purchasing now when mortgage rate interests are low and before the regeneration projects have completed in the area, investors can maximise their chances of achieving capital growth. The development itself is located close to Eldon Square Shopping Centre and Manors Railway Station. The convenient city centre location will appeal to young professionals and rental yields of 8% gross are predicted.

Alternative investments

Those who are more apprehensive over what will happen within the residential property market over the rest of 2021 may consider alternative investments that are not impacted by economic factors.

For example, the performance of the UK’s care home investment sector is underpinned by an ageing population, an area demographic, and the availability of bed spaces. The demand for bed space is driven by the UK’s ageing population and is not affected by interest rates or mortgage availability. It is estimated that by 2039, one in four people in the UK will be aged 65 and over.

Care home investments are income producing assets mostly suited to those who want to achieve good rental yields in a fully managed environment instead of capital growth. Income is generated through the occupancy of a unit vs. capital growth many buy-to-let investments yield. Care home investments do not derive value from buyer demand, but occupancy levels. Units typically start from around R1.4m and offer rental yields of 8% +. Many developers offer buy-back options at uplifted prices from year six onwards meaning that investors do not have to sell the unit themselves, although One Touch Property will also assist with the reselling of units.

In South Africa, May 2021 was the first month where house price increases failed to beat inflation. Demand influenced by low interest rates may have already peaked, and a cooling housing market is of no surprise considering the economy in South Africa is struggling. The possibility of interest rates rising from 2022/23 could further supress demand which would have a knock-on effect on house prices in the medium term. For those considering investment, it could be better to look elsewhere.

Conversely in the UK, the availability of new mortgage products, low interest rates and supply/demand imbalance should continue to boost property prices throughout the rest of 2021 in the UK. As the year progresses, confidence grows in the market as house prices rise beyond initial expectation. Savills for example, once predicted a 0% growth in house prices at the beginning of the year, before revising that figure to 4% and in July revising it upwards again to 9%.

These factors could create the ideal environment for investors looking to achieve good levels of capital growth. Get in touch today to learn more about our buy-to-let investments that are perfectly poised to maximise capital growth potential, as they come with exclusive off-plan discounts and are in areas of regeneration.

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