IS PROPERTY STILL A SAFE HAVEN?
MANY INVESTORS THINK PROPERTY IS AS SAFE AS HOUSES. BUT THE TRUTH IS THIS SECTOR, LIKE ANY OTHER, IS NOT IMMUNE TO ECONOMIC SETBACKS AND MARKET MOVEMENTS. WE TAKE A LOOK AT WHAT IS IN STORE FOR THE SOUTH AFRICAN PROPERTY MARKET OVER THE COMING MONTHS.
Cover story: Liesl Peyper and Glenda Williams Cover layout: Tshebetso Ditabo
Cover story layout: Beku Mbotoli
In 2006 the housing bubble in the United States burst and t he subsequent collapse in property pr i ces s parked a worldwide recession. Yet, the South African propert y market was not as vulnerable to price declines as the rest of the world where real house prices had lost up to 50% of their original value.
One of the reasons for South Africa’s higher real property prices compared to the rest of the world can be ascribed to extreme stimuli across the world, says FNB property economist John Loos. “There were big interest rate cuts in South Africa and in the US where they also had a huge fiscal stimulus. So we’ve had a situation of very high real prices by our historic standards, which were kept up by abnormally low interest rates and fiscal deficits.”
RESIDENTIAL PROPERTY Loos believes growth and activity in the residential market will start to slow by some measure. “House price growth is slower than it was compared to the beginning of last year. I anticipate this slowing growth to continue to get to a situation where we have low single-digit house price inf lation that will be below CPI inflation,” says Loos.
“We’ll see a gradual real house price correction – in other words, a reduction in real house prices. The stimuli have to be withdrawn at some point as we can’t just keep ratcheting up the government debt and have this massive current account def icit and rely on foreign capital. We’ve got to become a country that lives more within our means. I think the South African Reserve Bank knows that and they’re hiking rates gradually and so the gradual correction of real house prices now has to set in once again,” he explains.