SA stands firm in global prop­erty en­vi­ron­ment

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SA’s PROP­ERTY mar­ket shows a rel­a­tively pos­i­tive rat­ing against many other coun­tries, ac­cord­ing to the Knight Frank global house­price in­dex, but the cri­sis has forced a num­ber of lo­cal home­own­ers into dis­tressed sell­ing.

For ex­am­ple, the in­dex re­ports that prop­erty prospects in Dubai are still look­ing grim, as lend­ing woes con­tinue to plague the United Arab Emi­rates’ re­gion. Once renowned for spec­tac­u­lar build­ing projects, the in­dex re­ports a neg­a­tive growth of mi­nus 8,2% in Dubai’s av­er­age house prices.

In the re­port re­leased by Knight Frank UK, Dubai is placed 38th in the world, ahead of Es­to­nia, a coun­try in the for­mer East­ern bloc that has recorded a neg­a­tive growth of mi­nus 40,3%.

Mean­while, SA has moved up from 11th to 6th place with growth of 11,8%.

China tops the list with a yearon-year growth rate of 68,0%, well ahead of Aus­tralia in 4th place with growth of 20,0% dur­ing the first quar­ter of this year.

The UK, in 11th place, has an 8,8% in­crease, and the US, ranked 22nd, shows a 2,3% rise.

Di­eter Dep­pisch, who heads the prop­erty data re­search arm of Knowl­edge Fac­tory, says that the SA rat­ing, in­di­cates some ben­e­fits from the im­ple­men­ta­tion of the Na­tional Credit Act (NCA).

“The in­tro­duc­tion of the leg­is­la­tion in mid-2007 of­fered some pro­tec­tion from the ex­treme toxic debt ex­pe­ri­enced in the UK and US dur­ing the sub­prime cri­sis.”

De­spite the safe­guards put in place by the govern­ment, the global fi­nan­cial cri­sis has im­pacted heav­ily on some SA house­holds. Re­gard­ing so-called dis­tressed sales, Dep­pisch says there is no sys­tem of de­ter­min­ing the ex­act rea­son for trans­ac­tions reg­is­tered at the Deeds Of­fice.

A dis­tressed sale refers to a seller who is co­erced to sell his prop­erty through the fastest pos­si­ble means to keep cred­i­tors from the door.

“One of SA’s biggest auc­tion houses sold 5 000 prop­er­ties last year. Most of these were dis­tressed sales. The same com­pany now re­ports that only 30% of their cur­rent sales are dis­tressed and that the ma­jor­ity of the sales are com­mer­cial prop­er­ties.”

Con­sid­er­ing what the coun­try has gone through, some pos­i­tive signs are be­gin­ning to emerge.

In the res­i­den­tial cat­e­gory of R300 000 to R5m, full-ti­tle sales to the value of R75bn were recorded five years ago. This rose to a peak of R111bn three years ago, be­fore plum­met­ing to just R52bn in the year end­ing July last year.

How­ever, SAPTG’s lat­est data shows that full-ti­tle prop­er­ties sold to the value of R69,3bn dur­ing the past 12 months, a 29,9% year-onyear in­crease.

“Full-ti­tle sales re­main the back­bone of South African realestate sales. These are the tra­di­tional South African sub­ur­ban homes bought as a pri­mary dwelling and rep­re­sent the most sta­ble part of prop­erty trans­ac­tions. Slightly older fam­ily-ori­en­tated buy­ers make up most of the buy­ers of res­i­den­tial stock.”

On the other hand, sec­tional ti­tle sales have not shown the same re­silience. Dep­pisch says sec­tional ti­tle prop­er­ties are pop­u­lar with first-time buy­ers be­cause of lower ac­qui­si­tion costs, and are also favoured by buy-to-let in­vestors.

“The tighter lend­ing cri­te­ria in re­cent times, as well as the lack­lus­tre per­for­mance of the rental mar­ket, con­tin­ues to ham­per sec­tional ti­tle sales. In ad­di­tion, dur­ing the real-es­tate boom from 2004 to 2007 de­vel­op­ers cre­ated a sur­feit of sec­tional-ti­tle stock, some of which is only now be­ing mopped up slowly.”

The num­ber of cash buy­ers has shown a slight de­cline. Dur­ing 2008/09, 32% of full-ti­tle buy­ers paid cash. This fig­ure has dropped to 28% in 2009/10. How­ever, with sec­tional ti­tle prop­er­ties the rate re­mains con­stant at 30%.

SAPTG also re­ports that there has been a race-bias shift among buy­ers in the past five years, from 40% non-white buy­ers to 56%.

“This shift, show­ing a more rep­re­sen­ta­tive buyer pro­file for SA, is en­cour­ag­ing as an emerg­ing non-white mid­dle class starts to en­joy the real-es­tate priv­i­leges that were al­most the ex­clu­sive do­main of white buy­ers. We be­lieve this trend will con­tinue.”

Macroe­co­nomic fac­tors, in­clud­ing Eskom’s woes, rand strength/dol­lar weak­ness, com­mod­ity prices, tight lend­ing cri­te­ria and fragility in the Eu­ro­zone con­tinue to im­pede a sig­nif­i­cant re­cov­ery of the prop­erty mar­ket in SA, he says.

“All things re­main­ing the same, which they sel­dom do, we fore­cast av­er­age house price growth to re­main be­low 7% for this year, and to de­cline, pos­si­bly dip­ping into neg­a­tive ter­ri­tory dur­ing next year, as the grem­lins af­fect­ing our del­i­cate econ­omy, work their way through.

“Ad­di­tional rate cuts are very pos­si­ble, but may add less stim­u­lus than the prop­erty in­dus­try hopes for. We only ex­pect the real es­tate econ­omy to be­gin to come into its own dur­ing the 2012/13 cy­cle,” says Dep­pisch.

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