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.

Finweek English Edition - - INSIDE - BY LIESL PEYPER

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.

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