South Africa: Projections for property

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While its long-term potential may remain strong, particularly with a broadly positive macroeconomic outlook, the short-term future of South Africa’s property market is looking slightly more arduous. The country’s retail segment is still rising incrementally, but the commercial and residential components of the sector are likely to see muted activity and weak prices for some time to come.

According to a bi-annual property indicator from UK-based Investment Property Databank, which measures real estate performance worldwide, retail property saw upwards if lacklustre growth in the first half of the year, producing 0.4% capital growth from January to June. Commercial property stagnation was more pronounced, posting just 0.1% growth over the same period.

Residential sales are still weak, generally speaking, with prices flat or falling slightly over last year. Information issued by Standard Bank in early August showed that residential property prices increased by 2.4% year-on-year in July, down from 2.9% the previous month, putting the rate of growth at less than half that of inflation, which is running at 5.3%.

The trend for slowing growth and property valuations – and the impact on consumers – can be seen across the board, including the residential sector. Rael Levitt, the chief executive of Auction Alliance, a leading property sales house, noted that the pricing and leveraging pressure was having an increasingly clear impact of property sales in the residential sector. According to Levitt, 95% of all residential properties put under the hammer were being sold by distressed owners, comapred to 16% of commercial properties sold at auction.

Speaking at a property development conference in Cape Town at the end of July, Levitt said that some of the residential sales were the result of failed investment schemes or developments, though the number of property liquidations seemed to be tailing off since the beginning of the year.

While the long-term factors for the South Africa market look broadly encouraging, with favourable demographics, a number of comparative macroeconomic advantages and steady GDP expansion, short-term activity in the residential segment could remain sluggish for some time to come, according to Samuel Seeff, the chairman of Seeff Property Services, which has been tracking the trend in major international markets.

“The latest information from the US indicates that house prices continue to fall, with recovery only expected in 2014,” he said. “In the aftermath of the global recession and South Africa’s hesitant economic recovery, it is understandable that our housing market, not unlike that of the US, is experiencing a period of price correction, especially in the mid-market and luxury sectors against the pre-2008 boom levels.”

The latest GDP forecast from the Bureau for Economic Research (BER) projected that household spending will ease slightly in 2012, which might slow a full recovery in the property sector.

However, there are a number of measures being taken to bolster demand in the sector, with the central bank’s monetary policy committee keeping its key interest rates unchanged at 5.5% at its last meeting in mid-July, despite concerns over inflation. According to Andrew Golding, the chief executive of the Pam Golding Property group, signs of economic recovery and the welcome decision of the reserve to hold rates down could lead to improvement.

“There is a cautiously optimistic outlook for the next six- to nine-month period as the market appears to have overcome the worst, with the result that there are opportunities for trading conditions to improve, albeit gradually,” Golding said this summer.

The latest GDP forecast from the Bureau for Economic Research (BER) projected that household spending will ease slightly in 2012, which might slow a full recovery in the property sector.

It is far too early to factor in how the recent debt crisis in the eurozone, the downgrading of the US’s credit rating and the growing expectations of a slowdown in the global economy will effect South Africa and its property market. However, a study by the First National Bank in early August showed that there has been a 50% drop in the numbers of foreigners buying residential real estate in the country, with just 3% of total sales to overseas clients, down from a high of 7% at their peak in 2005. Should the latest wave of international uncertainty wash over South Africa, recovery in the property market could be pushed further down the road.


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