Residential overtook offices in 2021 as the largest real estate investment sector in South Africa

After the peak of the Covid-19 pandemic, real estate investment around the world has rebounded in 2021, according to Paul Tostevin, director of Savills World Research, with funds targeting real estate hitting new highs. Last year, more than 1,250 funds targeted $365 billion in capital between them, according to London-based investment data firm Preqin.

“In the 12 months to November 2021, total real estate investment volumes increased by 38% compared to the same period a year earlier. pandemic, volumes in the highly sought-after industrial sector are up 54% We expect the strong performance of the industry to continue in 2022.

“However, the big story for global real estate investment last year was that residential – namely multi-family, but also encompassing student and senior housing – became the largest area of ​​real estate investment in the world, overtaking offices for the first time (see chart below) Investors are attracted by its secure and income-generating qualities, its underlying demand and its resistance to technological disintermediation Strong demand is expected to continue in 2022, but the Shortage of standing stock means development will be the entry point for many.

Prospect of rising interest rates

“One of the headwinds is inflation, as well as the prospect of higher interest rates. Indications suggest that much of the inflation we are seeing is specifically related to the economic rebound, and therefore may be temporary. Real estate in general is seen as a good hedge against inflationary pressures, especially in the case of assets with shorter lease terms or indexed rents,” says Tostevin.
Dr Andrew Golding, Managing Director of Pam Golding Property Group, which is Savills’ exclusive residential property partner in Africa, echoes those sentiments. “For 2022 year to date, the residential real estate market is off to a strong start, demonstrating the continued positive sentiment and buoyant levels of activity seen in 2021.

“Despite indications that interest rates are on a slow but steady upward trajectory, fierce competition among banks for market share is ensuring a favorable lending environment which, coupled with continued strong demand for housing among first-time buyers first-time buyers and repeat buyers, should provide the South African property market with a solid foundation over the coming year.

Potential increase in home values

According to Dr. Golding, from an investment perspective, Lightstone’s projected scenarios suggest that home values ​​could increase by 3.4% to 5.1% in 2022. According to the Pam Golding Residential Property Index , national house price inflation (HPI) averaged 5.1% last year, down from 3.7% in 2020 and 2.6% in 2019. The Western Cape region recorded the highest price growth in 2021, at +6.2%, followed by KwaZulu-Natal at +5.3% and Gauteng +4.5%.

Moreover, according to the Pam Golding Residential Property Index, nationwide, the sub-R1m price range continued to record uninterrupted growth in 2021. However, the R1m – R2m price range recorded the strongest growth over the year as a whole (see below).

Sandra Gordon, senior research analyst at Pam Golding Properties: “While the Covid surge in freehold price growth has also come to an end, with price growth rapidly losing momentum, freehold price growth averaged +6.2% in 2021 compared to +3.0% for cup titles. The coastal price premium (within 5km of the coastline) continues to widen, reaching +1.3% in September 2021 (latest data) and averaging +1% for the year to date, compared to only +0.04% in 2020.”

Need for evolution of cities

Tostevin adds, “The rise of remote work has allowed workers to leave cities in search of more space, but the death of the city, which some predicted, turned out to be unfounded. What the pandemic has achieved, however, highlights the need for cities to evolve and improve their quality of life.

“This has direct implications for real estate. Cities need to encompass a wide range of uses, moving away from single-use neighborhoods. There are still many opportunities in the residential sector, in particular by bringing more to city centers, by diversifying the central business districts. In the highly competitive logistics sector, emerging niches, such as the last mile (the last step in the delivery process of a package), provide urban opportunities. »

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