SA stands firm in global property environment
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.