Good 2014 on the cards for house prices

Promis­ing eco­nomic signs amid hous­ing short­ages mean res­i­den­tial prop­erty val­ues will grow well next year, say agents

Weekend Argus (Saturday Edition) - - PROPERTY -

PRE­DICT­ING the fu­ture is no easy task, but some prop­erty pro­fes­sion­als are pre­pared to stick their necks out and have their say.

Absa has pre­dicted a 9 per­cent in­crease in res­i­den­tial prop­erty prices in the com­ing year, and Bill Raw­son says this is ab­so­lutely spot on.

“All the in­di­ca­tors now point to 2014 be­ing a good year for res­i­den­tial prop­erty and those aware of the mar­ket trends should be buy­ing right now,” he says.

The fac­tors pro­mot­ing steady growth in house prices in Raw­son’s view are:

● The strong like­li­hood of in­fla­tion be­ing con­tained be­low 6 per­cent and there­fore in­ter­est rates re­main­ing low for most of next year.

● In­creased in­fras­truc­tural spend­ing and the re­sul­tant job cre­ation.

● Grow­ing short­age of homes and the re­sul­tant will­ing­ness of buy­ers to pay more than the pre­vi­ous prices.

● Cap­i­tal growth po­ten­tial in hous­ing in South Africa.

“With cur­rent and fixed­de­posit bank ac­counts as well as many other tra­di­tional money mar­kets of­ten giv­ing very low re­turns, it makes sense to buy bricks and mor­tar. For the unini­ti­ated in­vestor, a cap­i­tal growth of 9 per­cent a year is not to be over­looked, es­pe­cially as this type of in­vest­ment is rel­a­tively safe.”

Raw­son pre­dicts that the strong­est de­mand for homes coun­try­wide will be in the R250 000 to R500 000 bracket, fol­lowed by an al­most as strong de­mand in the R500 000 to R1.5 mil­lion bracket. At the same time, he says there is clear ev­i­dence that in the up­per brack­ets de­mand and sales fig­ures are also im­prov­ing.

Raw­son says an en­cour­ag­ing sign is that the num­ber of bonds is­sued a month has now, for the first time in three or four years, topped 20 000 and, with the banks’ new at­ti­tude to bor­row­ers, this fig­ure is likely to rise fur­ther. How­ever, he points out that it is still well be­low the 40 000 bond mort­gages made each month in the boom of 2006 and early 2007.

The chief ex­ec­u­tive of MSP De­vel­op­ments, Ri­aan Roos, sees signs of the start of a ma­jor uptick, but says there are still chal­lenges for buy­ers.

MSP De­vel­op­ments has built more than 4 000 homes since 2001. The com­pany is the cre­ator of Buh-Rein Es­tate, the largest pri­vate de­vel­op­ment in the Western Cape, as well as many other af­ford­able hous­ing de­vel­op­ments.

Roos says that in the last four to five months MSP’s sales picked up con­sid­er­ably and he be­lieves this will con­tinue.

He says MSP’s big chal­lenge is still get­ting fi­nal fi­nan­cial ap­proval for po­ten­tial buy­ers.

“Some­times clients who have signed of­fers to pur­chase go through the whole ap­proval process and then fall at the fi­nal hur­dle, since the banks now gen­er­ally re­quire de­posits of 10 per­cent to 15 per­cent of the pur­chase price. For ex­am­ple, on our de­vel­op­ment Bel­ladonna Es­tate in Blue Downs only 40 per­cent of sales fi­nally go through.

“We re­ally need the banks to be more le­nient on the score­card so that more clients can get 100 per­cent bonds. MSP is in­ves­ti­gat­ing a num­ber of ways

‘Al­though prices are only ex­pected to grow by sin­gle digit per­cent­ages dur­ing 2014, they are in­deed on an

to see how we can help bridge that gap for clients while re­main­ing com­pli­ant with na­tional credit reg­u­la­tions. So my ad­vice to those who get end-of-year bonuses and are con­sid­er­ing own­ing their own homes is to save that bonus to­wards the de­posit.”

Roos says that another sign of im­prove­ment is that smaller de­vel­op­ers that dis­ap­peared in the last few years are start­ing to come back into the in­dus­try.

Adrian Goslett, chief ex­ec­u­tive of RE/MAX of South­ern Africa, says it is very dif­fi­cult to pre­dict ex­actly what the fu­ture holds, par­tic­u­larly con­sid­er­ing the many un­con­trol­lable vari­ables that can af­fect the prop­erty mar­ket.

Al­though the prime in­ter­est rate is cur­rently at 8.5 per­cent, the low­est it has been since 1973, econ­o­mists pre­dict the in­ter­est rate will prob­a­bly rise late next year. Goslett ad­vises con­sumers and home­own­ers to pre­pare for this by pay­ing off as much debt as pos­si­ble.

“As de­mand for prop­erty grows and stocks de­plete, we are likely to see higher prices. Al­though prices are only ex­pected to grow by sin­gle-digit per­cent­ages dur­ing 2014, they are in­deed on an up­ward trend, and that is not likely to change,” says Goslett.

“The stronger de­mand for prop­erty and in­ven­tory stocks de­plet­ing will bring about fur­ther op­por­tu­nity for the con­struc­tion of more homes and de­vel­op­ments, giv­ing buy­ers fur­ther prop­erty op­tions dur­ing 2014. Buy­ers who were re­luc­tant to in­vest in the prop­erty mar­ket dur­ing 2013 will still have vi­able prop­erty op­tions in the fu­ture, al­though at a higher cost.”

Goslett says that over the past year the banks have marginally re­laxed their lend­ing cri­te­ria, and this is likely to con­tinue next year.

“Banks’ de­sire to lend will in­crease marginally next year, de­pend­ing on how the new credit amnesty bill af­fects them. The per­cent­age of loan ap­pli­ca­tion ap­provals has in­creased to over 51 per­cent, which is a huge im­prove­ment from the 26 per­cent dur­ing 2009,” says Goslett.

He be­lieves there will be more cash buy­ers next year.

“There are many af­flu­ent prop­erty buy­ers and in­vestors with the means to pur­chase prop­erty, but they have been wait­ing in the wings to see which way the eco­nomic winds will blow be­fore com­mit­ting. With a more sta­ble en­vi­ron­ment and prop­erty prices on the rise, th­ese buy­ers will more than likely take ad­van­tage of the im­prov­ing mar­ket.

“Se­cu­rity and ameni­ties will con­tinue to be top pri­or­i­ties, with a likely in­crease to­wards se­cu­rity and gat­ed­type com­mu­ni­ties next year, as more and more South Africans point to se­cu­rity as their num­ber one pri­or­ity when choos­ing where to live. De­mand will grow in ar­eas that cater to th­ese sec­tors of the prop­erty mar­ket, which in turn will push up prices in th­ese ar­eas faster than the av­er­age.”

He ex­pects a move to­ward smaller or more man­age­able homes next year, with buy­ers opt­ing for homes closer to their jobs, schools and other ameni­ties like shop­ping cen­tres and med­i­cal fa­cil­i­ties.

He says that all of th­ese pre­dic­tions will largely de­pend on con­sumer sen­ti­ment, which will be af­fected by fac­tors such as the run- up to elec­tions, labour un­rest and var­i­ous other pos­si­ble sce­nar­ios.

“Al­though it’s im­pos­si­ble to pre­dict what will hap­pen in the leg­isla­tive en­vi­ron­ment, gen­eral eco­nomic con­di­tions and po­lit­i­cal is­sues, we can con­trol how we re­act to changes in our en­vi­ron­ment and adapt.

“Re­gard­less of the con­di­tions dur­ing 2014, his­tor­i­cally prop­erty has proved to be a good in­vest­ment over the long term and with good re­search buy­ers will find some good op­por­tu­ni­ties in the prop­erty mar­ket in the year ahead. South Africa’s prop­erty mar­ket has re­turned to nor­mal and is do­ing well. It is ex­pected that the mar­ket will con­tinue on its cur­rent path of nor­mal trad­ing con­di­tions in the year ahead, with no mas­sive peaks or lows,” Goslett says.

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