Property frenzy

Finweek English Edition - - INSIDE -

Whether it’s the scram­ble to se­cure stu­dent ac­com­mo­da­tion, the weak cur­rency lur­ing for­eign in­vestors, young pro­fes­sion­als get­ting onto the property lad­der or gen­eral op­ti­mism, property buy­ers and buy-to-let in­vestors are snap­ping up prop­er­ties quicker than de­vel­op­ers and sell­ers can put prop­er­ties on the mar­ket. And, in an ironic turn­around, with a large pool of buy­ers and smaller pool of sell­ers, many prop­er­ties are sell­ing for above ask­ing price. The bid­ding wars are rem­i­nis­cent of the property mar­ket in Scot­land and al­though the bids are not sealed as they are there, agents around the coun­try are reporting that mul­ti­ple bids (which in­clude ask­ing price of­fers) on prop­er­ties in high-de­mand ar­eas, are in­duc­ing buy­ers to of­fer above ask­ing price in or­der to seal the deal.

Take t he At­lantic Seaboard for in­stance where shop­ping for property is al­most akin to property hunt­ing in a f irst-world city such as Lon­don. Jan­uary and Fe­bru­ary 2014 saw just about ev­ery avail­able mid- and up­per-mid­value property snapped up with agents scram­bling to f ind stock. The same is true for the South­ern Sub­urbs of the Cape where stock is scant.

“The property mar­ket seems to be de­fy­ing the odds, with de­mand in the ma­jor met­ro­pol­i­tan sec­tors con­tin­u­ing to strengthen month on month. This, de­spite the eco­nomic set­backs of lower growth, the fall­ing rand, petrol and cost hikes ex­pe­ri­enced over the past year,” says Seeff chair­man Sa­muel Seeff. “Ma­jor stock short­ages are now ev­i­dent in the ma­jor met­ros and in many ar­eas we are be­gin­ning to see the emer­gence of a sell­ers’ mar­ket where

BY GLENDA WIL­LIAMS

sell­ers are get­ting mul­ti­ple of­fers and bet­ter prices,” he adds.

The Cape metro in par­tic­u­lar is per­form­ing well, es­pe­cially higher in­come ar­eas such as the South­ern Sub­urbs, City Bowl and At­lantic Seaboard where well-priced prop­er­ties are l it­er­ally f ly­ing off the shelf. One of the rea­sons for this, says Seeff, is that price growth has re­mained rel­a­tively f lat over the last few years and buy­ers are look­ing to cap­i­talise on this be­fore the mar­ket turns and prices start hik­ing again.

“De­spite the con­tin­ued petrol price hikes and other cost es­ca­la­tions, we be­lieve that the high de­mand will be sus­tained largely as most buy­ers have now be­come used to the pre­vail­ing eco­nomic cli­mate that has be­come the ‘new nor­mal’. The think­ing is also that if I don’t buy now, I may well miss the boat; ei­ther the in­ter­est rate will go up soon or prices will start hik­ing quite sig­nif­i­cantly, so let me buy sooner rather than later,” adds Seeff.

RENTAL DE­MAND

Rental de­mand is also cur­rently out­strip­ping stock avail­abil­ity and this spells op­por­tu­nity for buy-to-let in­vestors. But buy­ing now as op­posed to buy­ing in the down­turn could mean a dou­ble-edged sword as prop­er­ties are start­ing to sell for record prices due to stock short­ages. Nonethe­less, the de­mand for stu­dent ac­com­mo­da­tion will re­main, so in­vestors buy­ing into this mar­ket are al­most cer­tainly guar­an­teed in­come in the long term.

In­come pro­duc­tion for buy-to-let in­vestors of­ten out­weighs that of house price growth and with the cur­rent sup­ply short­age both in terms of prop­er­ties for sale and for rent, there is good rea­son to be­lieve that both are likely to yield bet­ter re­turns than have been posted in re­cent years. Per­haps a sig­nif­i­cant fac­tor is that the rental mar­ket, on the back of a two-year de­clin­ing trend, is now marginally out­per­form­ing that of house price growth.

This could be good news for buyto-let pur­chase growth where f ig­ures in re­cent years have been less than elec­tri­fy­ing. Slump­ing from 25% in 2004 to 7% in the third quar­ter of 2013, the slight 1% gain to 8% in the fourth quar­ter may spell an up­turn in this mar­ket.

With Jo­han­nes­burg the eco­nomic and f i nan­cial t itan i n Africa, it is not sur­pris­ing that the bulk of the

rental mar­ket stems from this re­gion. Michelle Dick­ens, man­ag­ing di­rec­tor of TPN Credit Bureau, says that 87% of ten­ants in South Africa rent be­low the R7 000 per month mark, with 40% of all SA ten­ants re­sid­ing in Gaut­eng. In­ter­est­ingly, adds Dick­ens, the City of Jo­han­nes­burg alone has more ten­ants than KwaZulu-Natal’s 16%.

COM­PAR­ING SOUTH AFRICA’S RENTAL YIELDS

Whether as a buy-to-let or short-let leisure property, yields have not been as strong as our Tanzanian, Mada­gas­can and Kenyan neigh­bours who, in the past, have posted sub­stan­tially bet­ter yields. This phe­nom­e­non how­ever is not un­usual in f irst-world cities where rental yields posted are of­ten low due to stock con­straints and where house price growth has his­tor­i­cally been the key ob­jec­tive.

Ac­cord­ing to Dick­ens, the City of Jo­han­nes­burg de­liv­ered the best gross yield at 10.13%, com­pared with Ethek­wini metro in KZN at 9.02%. Of the ma­jor met­ros, the City of Cape Town had the low­est gross yield at 8.15%.

Property price seg­ment also plays a size­able role in rental yields. Ac­cord­ing to FNB data on area value bands, the lower-in­come ar­eas yield bet­ter re­turns at 9.97%, with mid­dle-in­come ar­eas 8.79% and up­per-mid­dle-in­come ar­eas post­ing 8.63%. High-in­come ar­eas posted the low­est gross yield at 7.62%.

Yet, South Africa’s rental yields re­main some­what f lat in com­par­i­son to other coun­tries, emerg­ing mar­kets among them. But taken in con­text, even Lon­don’s rental yields are noth­ing to get ex­cited about. The em­pha­sis with Lon­don prop­er­ties, as with many other f irst-world cities, most of which also post low-rental yields, is on house price ap­pre­ci­a­tion rather than rental yield. FNB re­ports a 9.18% na­tional gross yield but it is the all-im­por­tant net yield (that take into ac­count op­er­at­ing ex­penses and costs, which can sub­stan­tially erode rental in­come), which is tan­ta­lis­ingly out of reach. Nonethe­less, spec­u­la­tion about net yields has yield-

Seeff chair­man Sa­muel Seeff

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