SA Property Industry - What will 2007 hold?
"During the first months of 2007, we have already experienced a complete change from 2006, with a brilliant market and a lot of activity going on," says Or Willie Marais, president of the Institute of Estate Agents of South Africa (IEASA)."We believe that in 2007 estate agents should maintain a high standard of professionalism and ethical conduct, and should keep up to date with the many current legislative and other legal changes, as well as other social developments that affect them and their clients."
Rali Mampeule, Director of Chas Everitt, Midrand, stresses that professionalism, service and ethics are imperative, while BEE involvement will help agents play a vital role in re-balancing the market situation. "Other issues that will demand attention from estate agents is the new Credit Act and the further interest rates increases," says Mampeule.
Jack Trevena, MD of bond origination company BondExcel, says that estate agents should definitely take cognisance of the emerged black market, which currently numbers 2 million people, but is growing by a staggering 200 000 to 800 000 people per year. "Estate agents not catering for this market will completely miss the transformation of the property buyers market, which will extend for another 10 years."
Estate agents should also take note of the fact that property investment has never come to the fore as much as it has in the past few years, says Linda Erasmus, CEO of Fine & Country. "Looking at investment trends, some of the 'Baby Boomers' who worked themselves to a standstill in the 1980s and 1990s can afford a third and fourth home by now. For, the rest of the population, holiday homes remain expensive, which is why fractional ownership has taken off so well." Erasmus believes that this investment trend will probably continue until fractional ownership is replaced with a better investment opportunity.
Estate agents also have a responsibility to alert their clients to certain pitfalls surrounding buying property in 2007, says Bill Rawson, Chairman of Rawson Properties. "Buyers must avoid the all-too-common mistake of assuming that interest rates will not increase much more in the coming year. Most economists are predicting a further rise in interest rates of up to 2%, resulting in a 14% or 14,5% mortgage rate.
"Another pitfall is poorly managed sectional title schemes in which unbudgeted expenditure becomes necessary and makes extra levies essential. Those who are renting should try to sign longer leases with the annual rental increases kept roughly in line with the inflation rate - and certainly not above 12%," advises Rawson. "The ongoing construction and development projects are going ahead at a record pace throughout most of the CBD and CBD fringe areas. There could be a great potential for values to appreciate in such an area after the so-called redevelopment."
Events expected to impact the industry in 2007
"Interest rates are expected to increase somewhat further before peaking in the first quarter and moving sideways in the rest of the year," predicts ABSA's du Toit.
BondExcel's Trevena concurs, "There will probably be a peak in the interest rate before it reaches a plateau and possibly declines again early next year."
On the legislative front, Dr Marais from IEASA says, "The rolling out of the National Credit Act may come to affect the industry, for example, in connection with credit checks of prospective tenants, with sales of property on instalments and with home loan approvals, where the biggest fear is that it might delay transactions substantially.
"We also expect the introduction of the so-called withholding tax for non-resident sellers of property, which has been pending since 2005, amendments to the Rental Housing Act, amendments to the Prevention of Illegal Eviction from and unlawful occupation of land Act (PIE Act), as well as the coming into effect of the proposed new electrical installation regulations."
Rawson elaborates, "The long-delayed amendments to the PIE Act has finally been published for comment. If the proposed amendments are passed into law this year, it will free private residential landlords and banks from the full rigours of the PIE Act. This will serve as an encouragement to investors to invest money in buy-to-let property.
"If amendments to the Rental Housing Act of 2002 are passed, it will mean that landlords will no longer need a court order to obtain an eviction, as the Rental Housing Tribunal has then been given the authority to grant eviction orders after a hearing."
"The proposed Integrated Coastal Management Bill will also turn current coastal property into a highly sought-after property investment," says Rawson. Owners of coastal property need not to be too concerned about the implications of the new Bill. The intention of this legislation is clearly not to repossess developed areas, but to protect undeveloped areas."
If the proposed new policy of 'inclusive' housing - which is being discussed with players in the building industry - is drafted into law, it could have far-reaching consequences for developers and property investors alike. "In terms of this policy," explains Rawson, "South African developers would have to put aside 30% of the value of each new development for low-cost housing to be scattered among the more expensive houses in the development. These proposed suggestions will have far-reaching consequences for the entire property market, especially for those investing in new developments, as well as for the feasibility of new developments."
"A further reduction in transfer duties by Trevor Manuel, could once again impact on the property market," says Rawson. Last year's reduction encouraged further investment in property, by making it more affordable in the lower brackets. However, by international standards, the 8% transfer tax here is still high.
"The essential simplicity of the estate agent's role disappeared several years go - and the new laws will make their lives still more complicated. Estate agents will have to become slicker, more clever and better informed. That may not be a bad thing - but its achievement will call for new efforts from all concerned. The Estate Agency Affairs Board has started to crack down on illegal operators and are also upgrading entry-level qualifications."
Mampeule says that the build up hype to the 2010 Soccer World Cup should boost investors' confidence and the property market. Trevena agrees, "The building of stadiums for 2010 will have a significant economic and psychological impact, as will the Gautrain project and the huge infrastructure development around the country."
Outlook for 2007
"ABSA forecasts house price growth to continue on its downward trend for most of 2007, with growth in prices expected to average about 9% this year," says du Toit. "This lower price growth will mainly be driven by the combined effect of the affordability of housing, especially for first-time and low- to middle income buyers, and interest rates."
Dr Marais is more optimistic. "Building cost has already escalated and will continue with its upward trend, increasing the cost of new homes. The interest rate is not expected to increase dramatically, but another percentage point increase before the end of 2007 is a possibility. Average increases of residential property prices and the number of sales will probably follow a similar trend in 2007 as in 2006. The growth in property prices is expected to remain in double digits."
"Although there has been a slowdown in house price growth, with up to a 16% difference between asking and eventual selling price, and although houses are staying on the market for longer, sometimes up to 10 weeks, there are still a number of factors that will continue to drive property prices upward," says Rawson. "These include a lack of supply in new houses and land for development, as well as soaring building costs. I predict a nationwide growth figure of around 10% for 2007. As the affordability of lower priced properties is still driving prices upward, it should be this section of the market that sees the highest growth figure.
"Although there has been a shift in the areas of real growth, residential development continues at a satisfactory pace. The demand is still there but is now strongest in the lower brackets and value rises here will surprise many people in the coming year. The major banks' new commitment to funding the lower-priced sector could revolutionise this entire market," Rawson continues.
"The property industry will be focusing on the following property buying trends, which is set to continue in 2007: an increasing swing towards smaller, more compact units; upgrading of security provisions; and greater self-sufficiency in the home," predicts Rawson. "However, the general outlook remains positive as interest rate rises are the result of a thriving economy, not one that is struggling, so the long-term forecast for property must remain excellent - demand will continue and sales will remain satisfactory."
"Estate agents can take a breath, but don't stop running," says Trevena. "The market will become more competitive in 2007, as sellers continue to build expectations of high prices and buyers begin to struggle with affordability as interest rates increase. There will be some casualties in the market and the number of estate agents is likely to drop."
Despite a slowdown in house price growth in 2006, the SA property market continues to achieve record-breaking prices across the country, and there is no reason why this trend should not continue in 2007, says Barak Geffen, Executive Director of SIR SA.
"This market still has a fair amount of mileage left for future growth, particularly at the top end of the price scale," says Geffen. "Demand remains strong at the upper end of the market from both local and international investors alike."
Erasmus of Fine & Country agrees, "We are still faced with various problems brought on by the exceptional performance of the property market over the past few years, such as an over supply of inexperienced buyers and sellers. The slight change in the market, as well as the interest rates, should be welcomed more than feared. The year 2007 will offer great opportunities for professional estate agents who are used to a professional system where hard work and commitment comes first. "
Courtesy Agent Estate Agency Affairs Board