South African Property Market – What’s happening?
Despite diverse views and opinions regarding the once buoyant South African property industry, the outlook is not necessarily all doom and gloom!
South Africa seen against the backdrop of global property pricing trends is comparable to countries such as the USA, the UK and Australia, who have all been reporting varying degrees of reduction in property pricing growth. However, although the slowdown in South Africa can be related to the National Credit Act; the banks conservative management and lending practices, and the negative impact of the international economy, people are still buying and selling property.
As a result of the prevailing economic factors, the supply of property is greater than the demand. This means that you are likely to find yourself in a position to drive really good bargains on rental/holiday properties.
Its a Buyer’s Market out there!
With all the doom and gloom said and done, now is the right time to get into the property market. If you do your homework you will find bargains galore and with the continuing decrease in interest rates you may just find that you can now afford to buy property, depending on the availability of a deposit.
Buyer’s Market Strategies
If you find yourself in a Buyers Market and you are in a position to see the slump through, it will not be a matter of whether you should buy or not, but rather what to buy and how much of it you can afford to buy before the balance shifts in favour of the sellers again.
When to Sell Property?
Location, location, location!” is one of the most frequently quoted real estate truths regardless of whether you live here, in South Africa, or anywhere else in the world.
You may wonder - what about the truth of “Timing, timing, timing!”?
In real terms, you should always be able to sell a property in a sought after location — regardless of where the market is at. That it is why location is quoted as the Number One real estate wisdom. But, selling a property in a sought after location for maximum profit, demands that you get your timing just right. This probably makes timing the Number Two — albeit equally important - real estate wisdom.>
Sell when everybody else is buying
The best time to sell, and your estate agent will confirm this, is during the upward phase of a property market cycle, and preferably as close as possible to the peak of the cycle. The upward phase in a property market cycle is commonly known as a Seller’s Market A Seller’s Market is characterised by low repo rates, low inflation, sound global and local economic growth, as well as a demand for property that exceeds the available supply.
Sell when survival is at stake
In an ideal world, you will patiently hang onto your property during a Buyer’s Market. In a real world, things are very different. There are many property owners who, faced with the financial burdens associated with higher debt repayments and a higher cost of living, have to down-scale in order to continue meeting their obligations. Naturally — when survival is at stake — any time will simply have to be a good time to sell. It is important however, to not overextend yourself financially when the chips are up, because when the chips are down, the over-extension is guaranteed to hurt your pocket. Rather do as the successful investors do: Be patient, circumspect, and realistic. This could see you weathering the few-and-far- in-between market slumps, while gaining the luxury of selling to the right buyer, at the right price and at the right time.
Should you Buy or Rent?
There are proponents on both sides of the fence where the much debated topic of buying versus renting is concerned, with only a negligible few occupying a position in between. If you can muster the courage and the self-discipline, buying offers much more rewards than renting — both personal and financial. In spite of the high price tag attached to properties and interest rates that have been creeping upwards, buying a property is still an attainable objective...but only if you plan.
The Renting Spiral
Renting can become habitual. You sign a lease for a year, and in exchange for contributing towards somebody else’s mortgage, insurance and rates and taxes, you have a roof over your head and security for a year. After the lease expires, you may sign for a second year at an increased rental. This renting spiral can continue its spin into perpetuity.
Escaping the Renting Spiral
Escaping the renting spiral will require that you plan for the day when you will be able to stake a claim to your own personal home. It means that you will need to set yourself a financial savings target to be achieved three or five years down the line. The money saved can then be used to pay legal fees and to make a deposit on your first home.
How Can I Get into the Property Market?
As we look at the current world economy, as well as our own here in South Africa, perhaps the question should rather be: "Should I try to get into the property market at all?” What has happened in the property market over the last few years?
Is it a matter of “from Boom to Doom?”
South Africa has gone through a period of rapid increases in property prices, the banks were granting loans of 100% plus cost, everyone was buying property. Between 2004 and 2006 prices rose at an average of 30% per year Then the meltdown came in 2008, the world went into recession and while economists still argue about whether South Africa is in a recession or not, the property market definitely is.
High Interest Rates - Lower Interest Rates
From 2007 we have seen interest rates go up and up during the time that house prices were starting to fall, people could not repay their home loans any longer and many now owe more on the loans than what the property is worth. Then number of houses being repossessed by banks increased alarmingly at the end of 2008. Currently we are seeing about 1200 houses per month being sold at sales in execution and insolvency sales. House prices continue to fall. At least, the experts agree that we may be near, if not at, the bottom and that prices will start recovering more in the first half of 2010. In December 2008 we saw the first interest rate cut and a number has followed since. While it may be too little too late for some it will help other homeowners to hang onto their properties. It also opens the door for new buyers to enter the market.
The National Credit Act
The introduction of the National Credit Act had an immediate impact on the property market. Banks were becoming overcautious in their lending and the fact that one needs a deposit now when buying a home (gone are the 100% loans) has taken many people out of the market.
Where and what property to look for
You have a number of options to explore in your quest to find great value in property at present. Ask the banks for a list of their repossessed houses and keep your eyes open for houses going on auction. You may also look at buying a house that needs some renovation, but be careful here and get an expert to give you a good indication of what it will cost to turn a major renovation project into your dream house. Many developers are sitting with too much stock and they are lowering their prices to offload the properties. But don’t be blinded by low price, you still want to make sure that you are buying a good investment. Do your homework, find out what is happening in the area you want to buy, look at crime statistics as well before making a decision.
Still can’t afford to buy?
If you still do not qualify for a home loan after the interest rate cuts that we have had over the past months, as well as the lower house prices, don’t despair. There are different ways of getting into the property market. Remember that you do not have to buy property alone. Property can be registered in more than one name and you can have a legal contract drawn up stipulating the exact split in shares should you buy property with others. Property can be bought in a name of a trust or a closed corporation as well, so investigate all your options and deal with people you can trust.
Has the South African Property Market seen the Worst?
Residential Property Prices
South Africa has certainly seen its share of ups and downs in the residential property market, however, with the South African government instituting a “big push” to revitalize the real estate markets in sixteen South African cities including such troubled spots as Johannesburg.
The property market in South Africa has seen tremendous growth in the coastal regions. However, some of our major cities property values have stagnated and struggled. With the new tax incentives in place, Johannesburg has seen prices of real estate in the inner city triple with more increases expected ahead of the much anticipated FIFA 2010 Soccer World Cup. The economic slowdown, higher interest rates and tougher lending criteria have all led to a huge drop-off in the property development industry.
Although the levels may be different, the stats are all generally indicating that we are near the bottom of the property cycle and that things are looking better ahead of us. Nevertheless, it noted that while the “normal” market appeared to be recovering, there was still evidence of major house price pressure in distressed circumstances.
The recovery is expected to be slow and much will depend in the medium-term on how the global economy weathers its challenges. “Talking recovery” from very depressed levels does not mean that the situation will change overnight. Even though the market is perking up, we are coming off a very low base at a slow speed. A positive is that people are returning to show houses, which is a sign that they are warming to the idea of a property purchase. Depending on micro and macroeconomic factors, it could take the next 12 - 24 months before we will really see any major improvement.
Courtesy: Agent – The Official Publication of the Estate Agency Affairs Board
“Redressing the Past, Building the Future and Guiding the Real Estate Business towards Professionalism”