The shape of things to COME

Learning & GROWING

WHAT IS THE SHAPE OF OUR PROPERTY MARKET RECOVERY? A “V”? A “W”? PERHAPS A “SWOOSH”, OR WHAT ABOUT A “SQUARE ROOT”? GARETH BAILEY SHARES HIS VIEWS ON THE FUTURE

If you keep abreast of economic news you will likely have come across terms like V-shaped and W-shaped recoveries – words used to describe the anticipated path of recovery. Whereas a V-shaped recovery suggests a radical turnaround to the same pre-Covid-19 levels, the W-shaped recovery suggests that, after making a full recovery, we will bomb again before recovering once more.

But are we limited to these letter shapes, or could we see some other creative designs emerging? What shape do we expect the recovery of our residential property market to follow?

According to Dr Andrew Golding, chief executive of Pam Golding Property Group, there are many potential recovery scenarios given the extent of the unchartered waters we are navigating at present, and the only certainty appears to be uncertainty. It is unlikely that we will experience a V-shaped recovery given that the property market is unlikely to enjoy sustained recovery given the absence of economic recovery.

Although buyers may be keen to purchase in the current generous lending environment, their ability to do so is likely to be gradually eroded by a sluggish economy and ongoing job losses as businesses adjust to weaker levels of demand as a result of strained household incomes. South Africa is currently seeing a steady stream of business closures and banks are preparing for a surge in debt defaults. This all suggests that we will not see the recovery following a V-shaped design.

ABOVE: Gareth Bailey, Pam Golding Properties.

Equally, a double-dip (W-shaped) recovery is also unlikely given that activity in the market is not expected to weaken again to the same extent as it did during the strict level 5 lockdown which virtually halted our economy. Furthermore, the Reserve Bank’s decision to cut interest rates to a nearly 50-year low will also help prevent the double-dip scenario provided that the country manages to avoid a second wave of Covid-19 infections which, at this stage, is looking possible.

Therefore, it may be possible that we experience a more creatively shaped recovery – perhaps a “Nike Swoosh” which sees a sharp downturn followed by a slow, gradual recovery. However, this would require a recovery in economic activity and, while there are tentative, positive signs, it is still too early to pronounce on this. Another shape could be the “square root” sign, which would see a sharp downturn followed by a sharp upturn and a sustained period of stability. Perhaps we could hope for a recovery shape somewhere in between a “swoosh” and a “square root”. It all depends on whether the current rebound in activity plateaus or inches upward as economic activity strengthens towards the end of this year.

After contracting by around 7% this year, a modest recovery in growth of around 2,5% is anticipated in 2021.

While the surge in residential property activity over recent months can be partly explained by pent-up demand, there is also a tendency among many to reassess their residential “lifestyle” requirements due to lockdown, as well as a strong appetite amongst first-time buyers to enter the market. The latter is partly driven by former renters who are opting to purchase rather than pay rental, while capitalising on the low interest rates and zero transfer duty payable under R1-million.

While the final shape of our recovery is far from clear, one thing is sure – Covid-19 has sparked a significant shift in circumstances, priorities and lifestyles triggered by months spent confined to home, which has prompted homeowners

Various trends evident in the marketplace include relocation to smaller and/or coastal towns and downsizing due to financial pressures or upsizing – to satisfy the need for work-from-home space and more outdoor space. In this regard, we are seeing a shift back to freestanding homes with garden cottages and an increasing demand for homes in secure lifestyle estates.

Furthermore, depending on how the pandemic and lockdown impacts, some families are choosing to live together to save costs, namely multi-generational living, others are relocating provincially – perhaps to a more relaxed lifestyle in a second-tier city, while some are emigrating – although the number of sellers due to emigration has not increased lately, perhaps due to travel restrictions or in some cases, the effects of Covid-19 on the international job market.

While there is currently a positive wave of change washing through the residential property market, we will have to wait and see whether these high levels of activity are sustained in the property market, and ultimately, what the shape of its recovery is.

NATIONAL GOLDCLUB AWARDS 2020

GoldClub Awards: Our North Durban office won National Franchise of the Year as well as the coveted Marketing Excellence award and Regional Office of the Year for sales value and units.