Buyers and renters must adjust expectations

WHILE the Western Cape continues to be the top performer in the South African residential property market, often far outpacing other provinces, people dealing in this sector must not allow their expectations to become detached from the realities of today’s situation, says Rowan Alexander, director of Alexander Swart Property, a new company based in Brackenfell.

“Encouraged by spectacular price increases of in, some cases, 10% or more per annum, many estate agents continue to exaggerate the strength of the Cape market,” he says.

“It is true that this is still a very good place to buy and further price increases are likely.

“However, it has to be recognised that our figures show that from the start of this year on an annualised basis, value rises have been around 10% or 2% to 3% lower than in previous years.

“The 2% interest rate rises of the past three years and growing inflation have made the potential buyer’s decision a great deal more difficult than it was only a year ago.”

Three years ago, a buyer earning R58 000 per month might have qualified for a bond of R2 million, said Alexander. Now, supposing his income has remained at much the same level, he would find he is eligible for a bond of only R1.735m.

In the same time period, a R2m house might have increased in value to R2.55m, or by 9.5% at a conservative estimate.

“Bearing in mind that wage increases over the past three years have not risen at anything like the same rate enjoyed by property prices, it is clear that today’s buyer faces a tougher situation than he did only a few years back,” says Alexander.

“Salaries are in general rising slower than home prices.

“This, combined with inflation and rising interest rates, has made it essential for buyers to reassess their position and expectations, but we find many are unable or unwilling to do this.”

In the rental market, difficulties regarding the purchase of homes traditionally resulted in a greater demand for rental properties.

Even here, however, he says achievable rental prices and returns per annum in the Brackenfell area (which is typical of most in Greater Cape Town) have been reduced to about 8%, especially in homes renting for above R15 000 a month.

“Landlords are still on a good wicket, but they, too, have to face the realities of today’s more difficult market.”

Below R15 000, says Alexander, demand remains good but landlords are likely to be faced with tougher conditions and these could prevail for several years.