South African Property Market

The South African property market strength in 2012 will rely on the economic growth which should pick up before the sector can realise real growth.

According to Samuel Seeff, Seeff Properties chairman, the economy would need to pick up before we can expect to see any real strength returning to the property market.

He explains that the market will experience reasonable demand with a lot of meaningful gains in clearing distressed properties out of the market, albeit with little fortune.

“No further interest rate hikes are expected and this should help consumers reduce their debt levels by 2013,” he says.

He says while consumers will still buy and sell property, they expect to see low sales volumes given the continued financial constraints and high bank decline ratios.

Seeff says 2013 will be the time that we will see a restoration of activity in the South African real estate market to levels pre-2007 when the National Credit Act was introduced.

Throughout 2012, sellers will still be competing with distressed properties and they will need to price conservatively and take heed of real estate agents’ advice of the market as to what buyers are prepared to pay.

Cash buyers will have the upper hand and time to consider their options and are likely to negotiate the best possible price and, on their terms.

“It is my view that the pent up demand that has been in place since 2007 will start impacting on the market, assuming that the banks are able clear impairments and debt out of the market.”

Only once turnover in the market picks up, are we likely to see an uptick in prices, but this will be mild in strength and will remain as such throughout 2013 and 2014, he says.

He says Gauteng is the powerhouse of the market and usually first to feel strength returning to the market and this regional is set to improve this year.

As for coastal properties, especially the non-primary markets including holiday and second homes and leisure properties, he predicts the sustained lack of demand to continue until the primary markets across the country pick up.

Experts believes we can look forward to:

-GDP growth will remain relatively flat with predicted growth of between 2.5 percent and 3 percent for 2012

-Does not expect further interest rate drop, depending on inflation, he anticipates an interest rate hike

-house prices have already come down by between 15 and 20 percent from pre -2008 highs, no significant price drops expected. Prices and sales volumes are likely to ebb along throughout 2012

-for those property owners who are not in a hurry to sell, hold on to your property but if you have to sell, price conservatively as low demand will keep prices subdued

-residential rental yields are set to increase as those who cannot afford to buy will rent instead. Rental rates are likely to increase by between 8 percent and 10 percent.

-commercial rental yields are expected to increase by 8 percent on average as per standard annual escalations and demand will remain relatively subdued.

Meanwhile, Dr Andrew Golding, chief executive officer of the Pam Golding Property (PGP) group expects the leisure property to take longer to return to its glory days and recovery compared to the residential property sector.

PGP hopes to see an improvement in foreign investment and expects that foreigners who have traditionally found South African an attractive place to invest in property will continue to do so in increasing numbers.

“We hope to see numbers of transactions continuing to increase, hopefully with approximately a 10 percent increase over this year and prices will remain flat in real terms.”

Golding explains that this year estate agents across the country will have re-organised themselves into two separate organisations.

One will represent a labour component or employee component (the former Institute of Estate Agents) and the other represent business owners and principals (the so-called business component) REBOSA.

These two organisations will be able to represent in a fully inclusive way, the constituencies that they are designed to represent.

In this way the industry will be able to be in control of its own destiny and to speak with one unified voice and will be able to interact meaningfully and credibly with all the stakeholders, both government and non-governmental, he says.

From a regulatory perspective, PGP hopes this year doesn’t have as many regulatory implications and that the full effect of the Consumer Protection Act will have been bedded down and properly understood, he adds.  – Denise Mhlanga

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PRETORIA – House prices in the cities of Cape Town and Johannesburg have shown the steadiest increase of all the major metropolitan areas in the country since the turn-around from negative growth in the second quarter of 2009. This is according to the latest house price index released by property research group Lightstone. The index (recorded until March 2010) also shows that properties in the ‘affordable’ band are performing well above other bands like the ‘luxury’ and ‘mid value’ bands.

Although Johannesburg has led the pack in annualised month to month house price inflation for 2010, the city’s figures took a dip from 8.7% in January and 9.2% in February to 8.6% in March. Cape Town however did not see the same reversal. Figures for the Mother City were 7.7% in January, 8.8% in February and 9.0% in March 2010. In the February/March period figures for the rest of the metros remained flat, accept for eThekwini which rose from 5.4% to 5.5%. The Nelson Mandela Metro fared the worst over this period declining from 2.0% to 0.8%.

Property price inflation also increased steadily for both coastal and non-coastal properties since the 2009 turnaround began, although it seems that the rate of inflation is starting to decrease for non-coastal properties. These figures were 7.4% in January, 8.2% in February and 8.4% in March 2010. Coastal properties on the other hand have retained a steadier pace of increase for 2010 at 4.5% in January, 5.3% in February and 7.4% in March.

Lightstone CEO Anthony Miller warned that the month-to-month data sets for February and March should not be seen in isolation and that they could contain data anomalies owing to various factors. 

Freehold properties have also outperformed their sectional title counterparts. Freehold property inflation was 7.9% for January, 9.0% for February and 10% for March this year, whereas sectional properties have shown a decline from a flat 7.1% in January and February to 6.8% in March.

According to the Lightstone data, the most lucrative sector remains the mid and affordable bands. Inflation in the affordable band rose from 10.9% in January, to 14.3%, but declined sharply to 12.6% in March this year.  In the mid-sector figures were 8.3% in January, 9.1% in February and 9.3% in March, compared to the luxury and high value sectors which showed increases of 7.3-8.0% and 7.2-8.0% respectively.

FNB Property Strategist John Loos says their Estate Agents Survey shows that Cape Town was indeed the city with the strongest demand in the 1^st quarter of 2010, but that the rate of decline in inflation was quicker for Cape Town than Johannesburg during the 2^nd quarter of the year. Loos also confirmed that the Nelson Mandela metro was their weakest performer during the 1^st quarter, mainly because industrialised cities were worst hit by the recession.

Loos was however, surprised by the sharp decline in the affordable price band shown by the Lightstone data and says that their figures don’t correspond. He added that their coastal figures were also somewhat different and showed much weaker performance. “They [Lightstone] measure their coastal properties as properties within 500 metres from the shoreline. We measure whole coastal towns and our data definitely showed year-on-year deflation in the first quarter of this year.”

Lightstone’s Anthony Miller confirmed the differences in data capturing methods for coastal properties and said that he would like to see another month or two’s data before drawing any conclusions on the coastal property market or any other trends for that matter. According to Miller, an early speculative conclusion may be that “there is a recognition that the market has largely bottomed out and that people who have capital are looking to buy bargain holiday properties”.

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