What to expect from the property industry in South Africa in 2022, including continued semigration

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It’s that time again, early in the new year, when we are speculating as to what 2022 may hold, in this case for the property part of the South African economy, says John Loos, property sector strategist at FNB.

In a still-weak, albeit improved economy with rising interest rates, property market fireworks don’t appear to be on the cards this year, he said.

Loos said that while FNB does project Real Gross Domestic Product to finally get back to the pre-Covid 19 levels of 2019, the 2019 level of GDP was insufficient to halt the rising vacancy trend, “and we believe it will still be insufficient this time around”. Domestically, the CPI inflation rate rose through much of 2021, from 2.9% year-on-year as at February last year to 5.5% by November, with petrol and food prices being key influencing factors.

However, rising cap rates and weak net operating income growth is expected to keep average capital values in “real” declining territory, said Loos. In other words, the low capital growth that may be experienced is not expected to keep pace with the general price inflation rate in the economy. Secondly, he said that given the successful ‘zoomification’ of much business interaction during the lockdown period, a portion of business travel that used to take place prior to Covid-19 is likely not to return, stated Loos. Thirdly, South Africa has been plagued by limitations on foreign travellers to the country.

This major class is expected to see its national average vacancy rate continue to climb in 2022, as many companies revise their office space needs down. Much has been made of the work from home surge, and this is a key dampener of demand for office space. In addition, the trend towards improved utilisation of desk space seems to have picked up speed of late, with the “hotelling” of desk space increasing in popularity.

“Slightly higher average consumer inflation in 2022, compared with 2021, is expected, and forecast hikes in interest rates on outstanding debt would eat into disposable income further. On top of this, the long-term rising trend in the effective tax rate on households is expected to continue, with adjustments for wage inflation-related tax bracket creep being only partial.

“TPN’s national average vacancy estimate has declined from a peak 13.31% in the 1st quarter of 2021 to 10.66% by the 3rd quarter, and average rental inflation increased mildly to +0.4% year-on-year in the third quarter after having dipped into moderate negative territory in prior quarters,” said Loos.

 

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