Greater affordability may indicate market bottom
THE FIRST signs of a market recovery in the property sector are on the horizon and, with it, confidence levels are on the increase. Property experts are reporting that South Africa’s residential market has bottomed and, in some areas, a marginal increase in demand can be seen.
The latest surprise interest rate drop will do much to bol s t e r c onfi dence bel i eves Jonathan Smiedt, CEO of ClareMart Auction Group.
“We have seen increasing attendances at our show days over the past month, especially s i n c e t h e Re s e r ve B a n k a n n o u n c e ment . Pe o p l e a r e realising that buying a home is again within their reach, and with sellers accepting more realistic prices, this is translating into confirmed sales.”
Over the past eight months, interest rates have dropped steadily by 5%, which makes the current interest rate of 10.5% one of the lowest we have seen in 20 years (the only other time in the past 20 years prime has been this low was April 2005 – June 2006).
The result is that home loan repayments have fallen by more than 25% since December 2008, and affordability has increased substantially.
S mi e d t b e l i e ve s t h i s i n - crease in affordability will soften the impact of the recession and lower the number of distressed and forced sales over the next 12 months.
“Those who have worked wisely with their money and not over-extended themselves, will now be able to upgrade by purchasing property at a higher level, but at lower prices than 18 months ago.”
Still, one of the biggest obstacles in the road to recovery is that financial institutions and banks maintain stringent lending policies in the main. With property prices at an all-time low and many sellers desperate to sell, banks still refuse to provide bond finance to buyers, even though the current property prices represent excellent value.
“It’s not that we don’t have buyers in the market, but access to finance has been reduced. This excludes many serious buyers from the market,” explained Smiedt.
Despite the recession, reports indicate that the local property auction industry is seeing good returns. Smiedt ascribes this success to the fact that the auction mechanism creates clean offers without suspensive conditions.
“The increase in activity and confirmed sales reported by ClareMart Auction Group are in all segments of the residential market,” Smiedt said.
A recent sale of a beachfront property in St James, C a p e To w n , f o r j u s t o v e r R 1 6 mi l l i o n c o n f i r ms t h a t high-end properties are still achieving top prices. Further sales figures confir m that activity in the R300 000-R2m range has also increased. Smiedt’s group reports a 30% month-on-month increase in residential property sales since May.
“Buyers are approaching the declining market with the attitude of this being the last opportunity to take advantage of lower prices before the market recovers. I believe we will see an increase in activity towards the end of the year,” said Smiedt.
With conservative estimates expecting a price stabilisation in the residential sector only in 2010, Smiedt believes astute buyers are purchasing property now.
The reported increase in international buyers hunting for high-end proper ties in South Africa will not be limited to luxury properties for much longer, predicts Smiedt.
With the 2010 Fifa Soccer World CupTM around the corner, potential inter national buyers from across the spectrum will realise the incredible value South African properties hold.
“With the global recession, fewer foreigners will be able to afford property in their own countries but, coming to a developing country such as South Africa with their strong foreign currencies, owning property becomes a reality for them.”
Smiedt advises those who are able to buy, to buy now, and those who have weathered the storm so far, to hold on to their properties.
“ P r o p e r t y i nve s t m e n t works in cycles and a longterm approach to your purchase will inevitably yield a good return.”