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Global growth expectations for real estate in 2021

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Picture: Los Angeles was voted the best city for real estate investment in 2020

2021 will be another challenging year for the world economy, however the global property market looks set again to be a shining star during these difficult times.

Local property market continues to see growth

The South African residential property market boomed during the Covid-19 pandemic. For the first time in several years the average property value submissions to the banks exceeded a double digit growth percentage.

Since July 2020 the average percentage in submitted property values exceeded 12% in comparison to the same period in 2019. CEO of MultiNET Home Loans Shaun Rademeyer says the main reasons for the growth can be attributed to the decline in the interest rate, which captured the attention of first-time home buyers as well as previous homeowners re-entering the housing market.

More than half of the homes sold since the lifting of lockdown restrictions were to first-time homebuyers. Despite the many challenges facing the country to rebuild its’ battered economy while trying to combat the spread of the coronavirus, the residential property market saw a welcome resurgence in home sales in the low-mid market section.

Standard Bank reported that the 2020 property price growth was in the 2,2% to 2,6% range. Entry-level residential property median prices (R665,372) grew 2.5% year on year (y/y), while prices of medium-sized (R1,669,052) residential property prices grew 6.4% y/y in August and the median prices of small residential properties (R1,026,873) grew by 3.3% y/y.

Rademeyer predicts that property price growth will slow in 2021 as more banks start easing payment holidays and a steady flow of housing stock becomes available in the market. “Developers have seen the trend and are urgently trying to get new developments launched, the result will be that as more stock becomes available, house prices will become more competitive. We will continue to see growth in the housing market in the first 6 months whilst consumers take advantage of the low interest rates”.

Real estate shows global resilience

AFIRE (Association of Foreign Investors in Real Estate), the association for international real estate investment focused on commercial property in the United States, reported that the growth and strength of the US market still represents a constant opportunity for real estate investors and buyers in 2021, due to a combination of low-interest rates and stability in property values.

As with most economies, the US has taken a battering as a result of the COVID-19 pandemic, experiencing particular struggles with unemployment. That being said, the US property market remained relatively resilient during the time.

The Federal Reserve’s decision to keep US interest rates at zero means that mortgage rates are expected to stay low for some time. As a result, the ability to secure cheap loans has fuelled demand for property within the US property market.  Stability and the potential for a rise in housing prices exists due to a lack of new housing supply and an increasing growth in the number of households.

Globally, London and Los Angeles remain amongst the best cities for real estate investment. In 2018, London was voted the number one city in the world for real estate investment, with German cities such as Berlin increasingly becoming attractive options.

However, things took a turn in 2021, with London now being number 4 in the ranking, still impressive given the historic uncertainties with Brexit. In 2020, Los Angeles was voted as the best city for real estate investment, moving swiftly up from 7th place in 2019.

Los Angeles is often considered to be a wise choice for long term real estate investment as it consistently remains an attractive place to live and investors almost always get their money back at the very least, with most making a healthy profit.

In September 2020 the median list price of Los Angeles property was USD 950K, up 5.7% compared to last year, while the median sale price was USD 850K. Whilst LA looks to remain a wise choice for long term investments, property prices in the area are forecast to only rise by 0.7% this year as a result of ongoing COVID-19 uncertainties.

London dropped three positions from the 2018 survey, with New York dropping to position 9 in the Global Cities category. Paris is number 2 and the best previous European city for real estate investment Berlin dropped to position 8. The average price for property in London stands at GBP 666,842 for November 2020. This is an increase of 3.59% since August 2020 and a rise of 5.34% compared to 12 months ago.

The average price of apartments in Paris increased by 7.95% to EUR 10,460 per square metre (sq. m.) during Q1 of 2020. In Q2 Property prices in Paris hit an average of €10,690 per square meter and are expected to climb to €10,860/m² in Q1 of 2021.

“It will be very interesting to see how the results for the 2021 real estate investment survey differ to the reported 2020 figures. With the plight of the COVID-19 pandemic still ongoing, undoubtedly there will be some dramatic changes within the sector,” concludes Rademeyer.

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