Sandton Central offers prime property
Sandton Central is not only South Africa’s financial capital, it’s also home to high-rise apartment blocks, lifestyle estates and complexes, and some of the country’s most sought-after residential spaces.
Sandton Central – and its most immediate outskirts: Morningside, Rivonia, Benmore, Sandown and Strathavon – had been holding its own despite the implementation of the National Credit Act in 2005, the financial crisis of 2008-2009, the rolling out of load shedding in 2014, and high interest rates in the face of a weakening economy.
The last two years, however, have witnessed a growing lack of investor confidence, even in prime areas such as Sandton. This has seen desperate sellers reduce their selling price, which has created a buyer’s market. And as property prices are expected to decline further over the next few months, we will see some of the best purchase opportunities in more than a decade, whether you’re looking to buy a residential or investment property in Sandton.
The effects of the pandemic on the property market
The low interest rate – the lowest it has been in half a century – is expected to be lowered again by September, which will make it even easier to qualify for a home loan. The interest rate is expected to remain low for the next 18 months.
The gross household income needed to purchase a R1 million property has decreased by around 20% since 2019. This, coupled with the lifting of the threshold for transfer fees to R1 million that was announced in February’s Budget, has been favourable for first-time property buyers. The greatest activity has been in the low to mid-market range, around R1.5 million, with budgets stretching up to R3 million in prime areas, such as central and greater Sandton.
Despite the reduction in property prices, potential investors are playing a wait-and-see game as they opt to rent instead of buy, until they determine what the future holds.
Why now’s the time to buy an investment property
An over-supply of properties coupled with a lower demand means that now’s the best time to buy a property in Sandton Central.
As Baron Rothschild said: “Buy when there’s blood in the streets, even if the blood is your own.” This contrarian investing principle encourages investors to go against market trends – buy when others are selling and sell when others are buying. This results in the markets becoming temporarily over- and under-priced. Though it might be a risky strategy, it pays off in the long-term.
The poorer the market performs, the greater the opportunity for profit in the future. On average, property investors who had the courage to buy property after the last financial crisis of 2008-2009 have witnessed their property value increase by more than 50% in the last decade, with mid-value houses fairing the best.
What the work-from-home trend means for property investors
The Covid pandemic and national lockdown have changed work dynamics. Tenants now consider Fibre and WiFi as a non-negotiable – whether it’s inclusive in their monthly rental rates or an additional cost. After bearing the cost of installation, the property owner can either negotiate the ongoing cost with the tenant as a percentage of their monthly rental costs or allow the tenant to settle the costs with the service provider.
Vacancies and good standing tenants
An investment property in a well-located area like Sandton Central – that’s perceived to be safer, offers a comfortable lifestyle and is close to key amenities, such as good schools, private hospitals and shopping malls – is unlikely to stand vacant.
Prime areas remain in high demand, despite the fact that many tenants will downgrade or opt for co-sharing properties until financial stability returns. However, in many cases monthly rentals are becoming more expensive than bond repayments on the same property.
To give Sandton property investors an idea, 81% of residential tenants in Greater Sandton remained in good standing during the first quarter of 2020, according to the TPN Rental Monitor. When it comes to good standing according to rental value, 86.30% of tenants who pay between R7 000-R12 000 monthly remained in good standing. They appeared to be the least affected segment of the market during lockdown, with a post-lockdown vacancy rate of 8.6%. Meanwhile, 84.28% of tenants within the R12 000-R25 000 remained in good standing with a post-lockdown vacancy rate of 11.3%.
My predictions for the future
In the past, it might have been easier for an employee to get a home loan than it was for their employer, namely a self-employed business owner or a commission earner. I sincerely hope that lending organisations undertake a mindset shift when it comes to offering home loans to such entrepreneurs, especially if their business is growing.
Markets will remain depressed for the next year, due to the economic effects of the lockdown, a lethargic economy, an over-supply of properties, and prolonged online property shopping before a purchase is made.
Competition between the major lenders has resulted in a lean towards 100% bonds, while ABSA is offering a 105% loan to value ratio. . Buyers with available capital for a deposit should take advantage of this situation.
If you have taken the decision to buy a property in the near future, take the risk and you might pick up a well-priced bargain. You are likely to pay off your bond through rental payments and if you wait long enough for the market to recover before selling, you will likely profit for future investments.
Stephen Brian Szewach
Stephen is the principal of an Estate Agency -Sandton Rentals & Sales and has been a property investor for 20 years with numerous properties in Sandton. He is the founder of the Property College (www.propertycollege.co.za: launching August 2020), a learning and educational platform that assists property buyers with property investment strategies. He holds a Bachelor of Commerce and a Bachelor of Accountancy (Honours Degree) from the University of the Witwatersrand. Stephen is a Fellow member of the Chartered Institute of Management Accountants and a Chartered Global Management Accountant.