Since the outbreak of the COVID-19 pandemic, scores of countries have felt the brunt of struggling economies.
According to Statistics SA (Stats SA), the South African economy recorded its third consecutive quarter of economic decline, falling by 2,0% (seasonally adjusted and annualised) in the first quarter of 2020. Stats SA says this followed a contraction of -1,4% and -0,8% in the fourth and third quarters of 2019, respectively.
Stats SA claims manufacturing is one of the most significant contributors to the economy’s poor performance in the first quarter.
According to Stats SA, economic activity in the manufacturing industry decreased by 8,5%, its third consecutive quarter of negative growth.
The contraction was mainly due to decreases in the production of petroleum products, metals and machinery, and transport equipment. Lower demand and maintenance stoppages contributed to the industry’s poor showing in the first quarter.
However, Stats SA finds consumer spending remained positive in the first quarter, with household consumption expenditure increasing by 0,7%.
Households spent more on food and non-alcoholic beverages and household furniture and equipment. Spending on clothing and footwear, however, decreased by 8,1%.
As South Africa sees extensive challenges for the upcoming future, how is the lockdown and the pandemic affecting local businesses? How are local business sectors evolving and what are their forecasts for the upcoming year ahead?
Tracey Reineke of SEEF Property Group explains the real estate industry contributes to a large portion of the GDP of our country.
“The extended period of no-trade has had massive effects on agencies, agents, property owners and landlords, Conveyancing Attorneys, Bond Originating Firms and SARS, who have all suffered huge losses in income. Many small businesses will not survive this, and one can expect many estate agents to be financially compromised or unemployed by the end of this lockdown.”
As for the future of real estate, Tracey explains that her opinion is divided on the future’s prospects.
“The interest rate has dropped, making it more affordable for purchasers to own their own home. However, with many jobs and self-employed people being on the brink of losing jobs or closure of businesses due to the economic decline caused, the banks are much stricter on assessing credit and are also taking into account the future outlook on the person’s job/business when assessing the loan application.”
She adds estate agents are receiving promising enquiries on properties with buyers interest in properties via the electronic portals.
Furthermore, Tracey explains long term investment in real estate still remains one of the strongest investments, with purchasers being able to take advantage of the low-interest rates and decreased pricing to increase their portfolios on investment/rental properties
What does the real estate market currently look like for people who intend to buy property?
“The market for buyers is looking good. A drop in interest rate, (and maybe a further cut in the rate) plus an expected drop in house prices make this the ideal time to buy. The banks are, in particular, encouraging first home buyers to enter the market.
How does the market look for people who intend to sell a property?
Tracey explains that in some segments of the market, the sellers are still controlling prices. This is due to the lack of supply and strong demand.
“The market is certainly going to be affected in the months to come; when the real effects of the economic damages suffered from the extended lockdown and restricted trading period come to light. The fears are that property owners will be unemployed or financially unable to meet their bond repayments and thus more properties may be brought to the market. This potential over-supply of stock will affect prices negatively and swing the market in the buyer’s favour.”
Tracy emphasises that sellers need to be well informed and price better than the competing properties for sale.
“The way in which estate agents have operated throughout history is changing. The real estate industry is becoming more technologically inclined. Estate agencies will be using different tools to operate in this new-found way of business.”
Tracey adds that between crime and viral infections, this may be the end of lazy open-day Saturdays and Sundays where people could spend hours wandering through beautiful show homes.
Looking towards the future, Tracey advises sellers to be informed. “Be prepared to negotiate. Have your home looking it’s very best and make sure that your target is logical and realistic. Choose your agent as carefully as you would choose your doctor. After all, you are trusting them with your biggest investment, your home.”
For buyers, Tracey advises that this is a brilliant time to buy a property with interest rates the lowest in many years.
“However, budget for a 2% increase in interest rates (as a buffer on your finances). Also be prepared for the banks calling for deposits of between 10% – 20%, due to their recently changed risk margins.”
She emphasises it is also important to call for a “Property Conditions Report’ on the property you are buying. This is so you are well aware of any expenses which need to be spent on repairs.
As the real estate sector prepares to develop, what does the manufacturing sector look like?
Peter Ho of President Plastics explains the manufacturing sector has seen a substantial loss during the pandemic and the subsequent lockdown.
“We have seen a loss of between 85% to 90% in our income. This is a huge loss for any business,” Peter says.
One of the greatest difficulties he is facing, as with other manufacturers, is that of cash flow.
“Banks have cut funding on a lot of projects, which is due to us having a lack of sales. However, this, in turn, has a chain reaction. As we struggle to get more financing, we are unable to acquire the necessary materials. This, in turn, sees us struggle to make sales.”
As Peter and his team look at acquiring government assistance, while attempting to find some form of relief from their suppliers and customers, Peter says not all has been doom and gloom.
“On a positive note, businesses such as President Plastics will be restructuring towards a new structure of business. We have now had the time to reflect on how to enhance our productivity, become more service orientated and see how we can improve.”
Voltex Newcastle’s Branch Manager, Jacob Erasmus explains that while the business’s doors were officially closed during Level 5, Voltex was still on standby for emergencies and essential services.
With the lowering of the lockdown levels, Jacob explains that Voltex has evolved with the times.
“We have implemented a series of safety measure for both the staff and customers. This is to ensure everyone remains safe.
During the lockdown, Jacob explains that Voltex has faced a certain degree of obstacles. This is due to construction workers not being able to operate during the lockdown. However, Voltex has still been able to supply people with their DIY and other electrical needs.
“Our focus is still driven on supplying both essential services and domestic. We will still supply the best electrical products in and around Newcastle,” Jacob explains.
With respective businesses sectors determined to pull through the pandemic and the hope of the GDP improving in the nearby future, not all hope seems to be lost.
