So what is the verdict on 2009 from a residential property perspective?

Was it as calamitous as 2008 and what’s in store for 2010?

“2009, although possibly the worst year in the South African property sector since the 1939/1945 recession, was not the total disaster that many doom and gloom pessimists had predicted it would be in the first two months of the year,” says Lanice Steward, MD of Anne Knight Porter Frank (APKF).

Drawing heavily on the recently updated FNB Global Economic and South African Property Reviews, Steward said that several sets of figures support her contention that the South African residential sector is now coming out of its recession and is set for a better year in 2010.

“First, we have to look at the IMF forecasts for the world economy in 2010. IMF anticipate a China-led revival giving a 5,1% growth in GDP overall, with even the USA at last in positive territory with a 1,5% growth, while the G4 growth will be at 2% plus.

“Second, in South Africa the year-on-year (y/y) decline in commodity values (on which we are heavily reliant) has now bottomed out and prices are on the up once again. A similar trend appears to be evident in many of our exports.

“Third, South Africa’s Leading Business Cycle Indicators, boosted by the lower interest rates and the recovery of the global economy, have been rising since March this year.

“Fourth, taking these and other factors into account and the recent unexpected rise in GDP after nine months of decline, economists are now looking forward to a 2% GDP growth in 2010. This is by no means spectacular, but if I understand the experts right, it could usher in higher growth in 2011.

“In the housing sector, as we have all witnessed, the second and third quarters saw a continued slow-down in the mortgage rates issued and a return, in a few instances, to 100% bonds being occasionally made available. In the R300k to R3 million market, it is particularly interesting to see that easing credit criteria saw the loan-to-values ratio improve for the first time since mid-2008 and, although at 89% it still has room for upward movement, the predictions are that this will take place.

“Overall mortgage loans grew in value y/y by 4,5% and by some 12% in number, and these figures are continuing to rise.

Further evidence that the residential recovery is now a reality, said Steward, is given by the FNB Activity Graph that shows a 45% increase this year in comparison with a 50% decline figure in early 2009. “Significantly, South African real estate agents have reported that the average time that a home is on the market has now dropped from a high of 21 to 16 weeks and the downscaling due to financial pressure has slowed (by 6%), while buying to upgrade has now risen by 5%.”

These figures, she said, will continue to improve in the months ahead. The FNB/Absa reports, added Steward, also indicate that since the second quarter some 25% more potential buyers see themselves being able to afford a home. “It is particularly encouraging to note that the Affordability Index is now well above the low of the late 1990s and early 2000s.” Jacques du Toit, property economist at Absa says 2009 was still overall a worse year than 2008 from a residential point of view. “The market has suffered a lot during the course of the year, especially in the first half with nominal price growth in negative territory. However, the past three months saw same positive price growth, most probably driven by the lagged effect of lower interest rates and banks’ selective relaxation of lending criteria.” He says that in 2008 price growth moved lower, but was still positive at 4%, while prices dropped in the first half of 2009, only to pick up over the past two to three months. “This year is likely to see prices declining by about 0,5% for the full year compared with 4% growth in 2008 (all in nominal terms).” He says 2010 will see gradual improvement from current levels, with nominal price growth of at least 5% and demand also picking up further. Dr Andrew Golding, CE of Pam Golding Property (PGP), also takes a less than sanguine view of 2009, but is full of optimism for the year ahead. “Characterised by at least a 50% fall-off in the volume of sales, an extreme scarcity of bank lending finance and, as a generalisation, a marginal fall-off in pricing, the past year has seen extremely tough trading conditions for the property industry,” he says. “We are looking forward to 2010 with great enthusiasm and optimism, having come through two tough trading years. The market seems to have reached its trough and if the last four months of this calendar year are anything to go by, then we should be in for a steadily improving market through 2010.” Steward says that in the Southern Suburbs of Cape Town the average selling price in 2009 was only 13% below that of 2007. “In Sandton, by contrast, it was well over 25% at one stage. Furthermore, our recovery is now taking place steadily, as we predicted it would, while in other areas of the country the market still appears to be fairly volatile.”

She says the stability of Cape property is at least partly due to the higher values in that region. “The FNB figures show clearly that the higher priced properties on the whole fared better in the downturn than those of lower priced properties, partly because in many instances the owners were not in a hurry to sell.”

Golding agrees wholeheartedly and says while trade in this particular segment has been thin, it has continued to surprise with its ability to push the top end of the residential property market in South Africa to new levels. “There have been well recorded record sales in SA’s top suburbs. There is no doubt that this segment of the market has now become measurable in terms of global comparisons and therefore it is not inconceivable that these prices will continue to rise as discerning buyers find value in SA’s very top properties.” – Eugene Brink

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“Property, like any investment is not risk-free, but with careful planning and preparation the right kind of property investment will show great returns for investors.”

So says Michelle Dickens, managing director of TPN, a registered credit bureau, who adds that aspirant landlords should consider their affordability and factor in an increase in interest rates, property maintenance cost and the possibility of non-collection of rent.

“Property management requires ongoing supervision, even if the rent collection and management has been outsourced to a letting agent. Landlords still need to ensure they actively monitor their investment and have capacity to liaise with their tenant or letting agent regarding property maintenance issues,” she says.

“Over time property is an appreciating asset and right now is a buyer’s market, and interest rates have dropped. Currently TPN has seen great investment potential for properties in the Western Cape and in the R3k to R7k rental bracket. “Properties within the R7k to R12k and upwards rental bracket are higher risk. It is important to make sure that as a potential investor you have disposable income available and do not be afraid to bargain over the asking price,” says Dickens.

Mike Thorn, principle owner of landlords, which provides online services to help landlords and agents manage rental property, has some useful tips when it comes to sourcing the right property for your investment:

- When buying property with a tenant still present, always make sure that the lease agreement is current and up-to-date. Also make sure the deposit has been paid in full and rent is up-to-date. An incoming inspection is critical to make sure there are no severe damages, etc.

- Location is key! Buy properties in high demand areas to get the most out of your investment. The property should also be in close proximity to hospitals, schools and main roads. If you are buying in a complex or with a body corporate, make sure that they are competent.

- A good buying agent will know exactly what to look for and will make the buying process a lot easier, but make sure that before you choose your agent, they have an existing agreement with a property management agency that subscribes to TPN to ensure that quality tenants are placed, thus further protecting your investment.

- Be wary of “rent guaranteed” properties that offer a cash back reward. This is often a trap as the true price of the property is clouded and the cost of the rent is padded into the selling price, which means you will pay more than the property is actually worth. Sophia Baspellides, rental agent for Just Letting in Honeydew on the West Rand, says there is currently a big demand for townhouses in the price range between R4,500 and R6,500. “Young families with kids comprise a large part of the tenant profile and they are generally looking for units with three bedrooms and two bathrooms. The demand is so robust that if I had 20 units available in a month, I could let them all.

” She would advise buy-to-let investors to purchase units with at least two bedrooms and two bathrooms. “Two bathrooms seem to be the primary prerequisite these days as tenants often have guests over and families also prefer to have the extra one.

“They also seem to like lock-up garages and gardens and potential landlords should keep this in mind when they buy a unit. She says the default percentage of tenants is very small at the moment and these cases are usually circumstantial. “It is mainly due to couples getting divorced or separating or people losing their jobs. We do strict screening of potential tenants, but there’s always the risk of a tenant defaulting for whatever reason.”

Lisa Pasporino, rental agent for Just Letting in Faerie Glen in the east of Pretoria, says townhouses are always a good buy for buy-to-let investors. “The demand up to R7k is very strong and anything below R5k is snapped up as soon as it becomes available.

His advice to investors is to always look at the financial history of a townhouse complex before willy-nilly buying into it. “Don’t take its appearance at face value. Do your homework thoroughly and look at the books to see whether or not it’s a well-managed complex. This could make a big difference to the returns on your investment in the long-run.” – Eugene Brink

www.mortgagepluscc.co.za

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The year is ending for property investors, sellers and service providers better than it started. After a gloomy period of sliding house prices amid slow sales volumes, residential real estate has started perking up and South Africa looks quite good in the global charts. It ranks number 15 among 18 countries registering positive returns year-on-year, according to the latest Knight Frank Global House Price Index.

Absa’s residential real estate expert Jacques du Toit issued a report, also this week, that South African house prices improved not far off 5%, comparing November 2009 to same time last year. The average South African house now costs R1m.

A marked improvement in performance late this year means that when the average South African looks back at 2009, their home will have declined in value by roughly ½%, according to Absa’s calculations. That’s a relatively modest fall if you consider we have been in the throes of the worst global recession seen in decades.

In broadbrushstrokes the picture is looking rosier than it has for some time. Said Du Toit: “If recent trends in price levels prove to be sustainable, nominal price growth of at least 5% can be expected in 2010. Real house prices are forecast to decline for a second consecutive year in 2009, with at best a small real increase next year, based on nominal house price and consumer price inflation trends and projections.”

Can the good times continue?

Rising electricity rates are causing great concern. Some reckon the steep 35%-plus increase Eskom would like to implement will put the brakes on the economy just as South Africa is trying to pull away from recession.

FNB’s top property analyst John Loos noted that it isn’t only under-investment in electricity supply that has caught up with the nation.” Transport, water and sewage in some areas also require urgent attention, which would probably imply more costs coming the way of the household sector,” he observed.

There’s also danger riding in from the Middle East.  Until now, Dubai has been synonymous with “shop till you drop during your airport stop-over” for many South Africans. Its crashing real estate market, however, is threatening to cause massive financial ripples across the globe and at the very least discomfort in some quarters. Dubai’s government, through various entities, has tentacles in many countries and vice versa.

Even South African life assurer Old Mutual has skin on the game in Dubai. Bloomberg news service reported earlier this week that Old Mutual’s U.S. life unit has $83.6m in Dubai World-related bonds. It quoted ratings agency Moody’s as saying it does not believe the exposure is “meaningful”, however it highlighted the fact Old Mutual is one of the three “American” insurers with the most bonds sold by Dubai World, the holding company that’s in talks to renegotiate a staggering $26bn of debt.

Liam Bailey, head of residential research at Knight Frank suggests the whole Dubai World debacle is threatening the global pick-up in residential property prices. Bailey said, after the release of the latest Knight Frank Global House Price Index: “The recent debt issues with Dubai World and the subsequent loss of confidence by investors means even this nascent rally is already under threat.”

House prices are now rising in a clear majority of locations around the world with almost 70% of countries in the Knight Frank Global House Price Index reporting growth in the third quarter of 2009. There is even talk of another property bubble developing in some locations, like Singapore. Improvements come in many cases after large price declines.

“It is worth noting that house prices in almost 60% of the countries in the index are still lower than they were a year ago. That is not to say prices are on a guaranteed one-way trajectory – the global recovery from recession is unlikely to be trouble-free as the recent problems in Dubai have highlighted – but it does seem that any further falls are likely to be corrections rather than the start of another round of drastic reductions,” said Bailey.

In the main, it looks like it is a little early to get out the party hats and start celebrating. If you have been planning on selling, now might be a very good time to put your home on the market. At the very least the 2010 euphoria should help add some fuel to the market. If you’re buying, or holding, don’t hold your breath for rip-roaring returns any time soon.

www.mortgagepluscc.co.za