Greater af­ford­abil­ity may in­di­cate mar­ket bot­tom

Weekend Argus (Saturday Edition) - - AUCTIONS -

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.”

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