Good news as prop­erty re­cov­ers

Peter Gil­mour, Chair­man of RE/MAX of South­ern Africa, speaks to Home Front about the re­cov­ery of both the lo­cal and in­ter­na­tional prop­erty mar­ket

Business Day - Home Front - - HOMEFRONT -

BOTH econ­o­mists and the me­dia typ­i­cally fo­cus on the same thing — bad news. I would like to fo­cus on some of the good news that is hap­pen­ing in our coun­try and around the world as economies and the real es­tate in­dus­try re­cover from the worst re­ces­sion in mod­ern times.

The bank­ing cri­sis around the world hit the US early in 2007 oc­ca­sioned by years of poor lend­ing poli­cies dur­ing the 2002 to 2008 boom years. A large part of this lend­ing took place in both com­mer­cial and res­i­den­tial real es­tate and as the nor­mal eco­nomic cy­cle slowed, more peo­ple who had been given loans based on in­flated prices and un­sus­tain­able pay­ment to in­come ra­tios, ad­justable in­ter­est rates and the like be­gan to de­fault.

What hap­pened in the US, Europe and be­yond over the last five years is well doc­u­mented and re­ported and need­less to say SA ex­pe­ri­enced the fall­out of the world re­ces­sion. How­ever, be­cause our fi­nan­cial sec­tor was bet­ter reg­u­lated and the Na­tional Credit Act came into ef­fect in 2007, we fared bet­ter than most other coun­tries.

The best per­form­ing real es­tate mar­ket in the world over the last five years was Canada, where sales vol­umes and prices were af­fected by only nom­i­nal per­cent­ages. In SA prices of prop­erty have fallen sub­stan­tially, de­mand for real es­tate has re­duced and, as in the US, home­own­ers found it dif­fi­cult to main­tain their bond pay­ments and many home­own­ers have ei­ther lost their houses or are be­hind on their monthly bond re­pay­ments.

The good news is that the worst of the down­turn is over and we are now look­ing for­ward to im­prove­ment in the real es­tate mar­ket and the econ­omy as a whole.

In­ter­na­tion­ally, the good news is that un­em­ploy­ment has re­duced in the US and many Euro­pean coun­tries over the last 12 months. The ad­di­tion of 97 000 net new man­u­fac­tur­ing jobs in re­cent months in the US was the strong­est three month rise in 16 years, and the US stock ex­change has re­bounded 87% since its low in early 2009. Added to this, the US eco­nomic growth has been pos­i­tive for seven con­sec­u­tive quar­ters. All of this has had knock-on ef­fects world­wide.

On a lo­cal level, sales gen­er­ated last year by RE/MAX agents in­creased by 40% over 2009. Sales con­cluded by RE/MAX agents ac­counted for ap­prox­i­mately 15% of all res­i­den­tial prop­erty sales in the coun­try, even though their agent base ac­counted for only 5% of the agents in SA. It’s not only RE/MAX re­sults that in­di­cate a pos­i­tive turn in the lo­cal prop­erty mar­ket.

The First Na­tional Bank (FNB) buy­ing es­tate agent sur­vey for the first quar­ter of the year, for ex­am­ple, shows marked im­prove­ment in de­mand. The sur­vey cat­e­gorises the mar­ket into four agent-de­fined in­come seg­ments: Lower In­come Ar­eas where the av­er­age house price is ap­prox­i­mately R582 000); Mid­dle In­come Ar­eas where the av­er­age house price is ap­prox­i­mately R1,17m; Up­per In­come Ar­eas where house prices av­er­age around R2m and High Net Worth Ar­eas where the av­er­age house price is ap­prox­i­mately R2,8m.

Agents were asked to rate de­mand ac­tiv­ity on a scale of one to 10 and those op­er­at­ing in the lower in­come and mid­dle in­come seg­ments

While the level of dis­tressed prop­er­ties may have de­creased slightly, they are ex­pected to make up 30% of all res­i­den­tial prop­erty sales over the next three to five years. This year alone, RE/MAX has trained 450 of its agents as Cer­ti­fied Dis­tressed Prop­erty Ex­perts in light of these sta­tis­tics. The li­cense to des­ig­nate agents in SA, which is of­fered ex­clu­sively to agents of RE/MAX of South­ern Africa, was ob­tained from the Dis­tressed Prop­erty In­sti­tute LLC which has been of­fer­ing the des­ig­na­tion in USA and Canada for the last three years and is widely recog­nised as the leader in its field.

There are many other signs in both the lo­cal econ­omy and real es­tate in­dus­try to sup­port a mea­sured re­cov­ery, in­clud­ing the fact that mort­gage in­ter­est rates are at his­tor­i­cally low lev­els and that house prices are at lev­els seen in the early 2000s and are still de­creas­ing in real terms, which gives buy­ers a great op­por­tu­nity to se­cure a well-priced home or in­vest­ment.

Added to this, a high per­cent­age of cash buy­ers and in­vestors are preva­lent in the mar­ket and the 50% of South African credit users who have good credit records are tak­ing ad­van­tage of the cur­rent mar­ket con­di­tions.

SA has prob­a­bly one of the fastest grow­ing mid­dle class pop­u­la­tion seg­ments in the world, bring­ing new buy­ers into the mar­ket ev­ery month. Home prices and in­ter­est rates have also opened up the mar­ket to peo­ple who, five years ago, could not af­ford to buy a house and who have been sav­ing in the hope that mar­ket con­di­tions would re­turn to where they are now. Fur­ther­more, the in­tro­duc­tion of the Con­sumer Pro­tec­tion Act has given con­sumers more re­course on poor ser­vice and has placed a greater em­pha­sis on the real es­tate in­dus­try to raise its stan­dards of ser­vice.

In line with this, re­quire­ments for es­tate agents to be reg­is­tered to con­duct busi­ness in 2012 in­clude be­ing ex­ten­sively re­trained ac­cord­ing to a cur­ricu­lum ap­proved by Ser­vices Seta and the Es­tate Agents Af­fairs Board. RE/MAX of South­ern Africa has com­plied with all in­dus­try-set train­ing re­quire­ments and more than 75% of its agents have com­pleted their rel­e­vant NQF qual­i­fi­ca­tion.

Look­ing at the econ­omy as a whole, there is much to look for­ward to. SA has been ad­mit­ted to BRICS (Brazil, Rus­sia, In­dia, China and SA) — a move that could sig­nif­i­cantly im­prove the econ­omy in the fu­ture. Large in­vest­ment flows into the coun­try as in­vestor con­fi­dence in emerg­ing economies strengthen has also ben­e­fited the econ­omy along with in­creased tourism num­bers since the World Cup, which has re­sulted in a pos­i­tive in­flow of cap­i­tal. SA has in­tro­duced tax pro­pos­als to make it a more at­trac­tive place for multi­na­tional com­pa­nies work­ing to es­tab­lish a base for their fu­ture African net­works. The South African Cham­ber of Com­merce’s busi­ness con­fi­dence in­dex has in­creased from 86.4 in Fe­bru­ary to 88.3 in March which is its high­est level since Septem­ber 2008. This data in­di­cates that the econ­omy has es­tab­lished some mo­men­tum and re­mains re­silient in the face of global events.

The South African real es­tate in­dus­try has been a fo­cus of bad news over the last four months and the lat­est rev­e­la­tion by the EAAB Board Pres­i­dent as to the state of the reg­u­la­tory body ap­pointed by the DTI has not helped.

The in­dus­try has strug­gled with the EAAB for years but has still largely man­aged to reg­u­late it­self led by the ethos and val­ues of lead­ing com­pa­nies and real es­tate groups who have been around for 20 years and more. Yes, the in­dus­try has had to adapt to lower lev­els of sales over the last three years but has come through stronger and with more re­solve to pro­vide the real es­tate cus­tomer with bet­ter ser­vice and pro­fes­sion­al­ism.

The num­ber of es­tate agents has dropped 50% since 2006 and those who are still in the in­dus­try are those who have sur­vived three of the tough­est years in real es­tate and who are full time pro­fes­sion­als and com­mit­ted to be­ing trained to be even bet­ter than be­fore.

The fact that a very small per­cent­age of op­er­a­tors who do not up­hold this pro­fes­sion­al­ism are high­lighted by the me­dia should not im­ply that the in­dus­try as a whole is all bad. There are about 100 000 real es­tate trans­ac­tions that oc­cur an­nu­ally in SA and it is rea­son­able to as­sume that not all of these oc­curred with­out some prob­lem. How­ever, in my 40 years in real es­tate I still be­lieve that we have one of the best and most so­phis­ti­cated real es­tate in­dus­tries in any emerg­ing econ­omy.

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