Good news as property recovers
Peter Gilmour, Chairman of RE/MAX of Southern Africa, speaks to Home Front about the recovery of both the local and international property market
BOTH economists and the media typically focus on the same thing — bad news. I would like to focus on some of the good news that is happening in our country and around the world as economies and the real estate industry recover from the worst recession in modern times.
The banking crisis around the world hit the US early in 2007 occasioned by years of poor lending policies during the 2002 to 2008 boom years. A large part of this lending took place in both commercial and residential real estate and as the normal economic cycle slowed, more people who had been given loans based on inflated prices and unsustainable payment to income ratios, adjustable interest rates and the like began to default.
What happened in the US, Europe and beyond over the last five years is well documented and reported and needless to say SA experienced the fallout of the world recession. However, because our financial sector was better regulated and the National Credit Act came into effect in 2007, we fared better than most other countries.
The best performing real estate market in the world over the last five years was Canada, where sales volumes and prices were affected by only nominal percentages. In SA prices of property have fallen substantially, demand for real estate has reduced and, as in the US, homeowners found it difficult to maintain their bond payments and many homeowners have either lost their houses or are behind on their monthly bond repayments.
The good news is that the worst of the downturn is over and we are now looking forward to improvement in the real estate market and the economy as a whole.
Internationally, the good news is that unemployment has reduced in the US and many European countries over the last 12 months. The addition of 97 000 net new manufacturing jobs in recent months in the US was the strongest three month rise in 16 years, and the US stock exchange has rebounded 87% since its low in early 2009. Added to this, the US economic growth has been positive for seven consecutive quarters. All of this has had knock-on effects worldwide.
On a local level, sales generated last year by RE/MAX agents increased by 40% over 2009. Sales concluded by RE/MAX agents accounted for approximately 15% of all residential property sales in the country, even though their agent base accounted for only 5% of the agents in SA. It’s not only RE/MAX results that indicate a positive turn in the local property market.
The First National Bank (FNB) buying estate agent survey for the first quarter of the year, for example, shows marked improvement in demand. The survey categorises the market into four agent-defined income segments: Lower Income Areas where the average house price is approximately R582 000); Middle Income Areas where the average house price is approximately R1,17m; Upper Income Areas where house prices average around R2m and High Net Worth Areas where the average house price is approximately R2,8m.
Agents were asked to rate demand activity on a scale of one to 10 and those operating in the lower income and middle income segments
While the level of distressed properties may have decreased slightly, they are expected to make up 30% of all residential property sales over the next three to five years. This year alone, RE/MAX has trained 450 of its agents as Certified Distressed Property Experts in light of these statistics. The license to designate agents in SA, which is offered exclusively to agents of RE/MAX of Southern Africa, was obtained from the Distressed Property Institute LLC which has been offering the designation in USA and Canada for the last three years and is widely recognised as the leader in its field.
There are many other signs in both the local economy and real estate industry to support a measured recovery, including the fact that mortgage interest rates are at historically low levels and that house prices are at levels seen in the early 2000s and are still decreasing in real terms, which gives buyers a great opportunity to secure a well-priced home or investment.
Added to this, a high percentage of cash buyers and investors are prevalent in the market and the 50% of South African credit users who have good credit records are taking advantage of the current market conditions.
SA has probably one of the fastest growing middle class population segments in the world, bringing new buyers into the market every month. Home prices and interest rates have also opened up the market to people who, five years ago, could not afford to buy a house and who have been saving in the hope that market conditions would return to where they are now. Furthermore, the introduction of the Consumer Protection Act has given consumers more recourse on poor service and has placed a greater emphasis on the real estate industry to raise its standards of service.
In line with this, requirements for estate agents to be registered to conduct business in 2012 include being extensively retrained according to a curriculum approved by Services Seta and the Estate Agents Affairs Board. RE/MAX of Southern Africa has complied with all industry-set training requirements and more than 75% of its agents have completed their relevant NQF qualification.
Looking at the economy as a whole, there is much to look forward to. SA has been admitted to BRICS (Brazil, Russia, India, China and SA) — a move that could significantly improve the economy in the future. Large investment flows into the country as investor confidence in emerging economies strengthen has also benefited the economy along with increased tourism numbers since the World Cup, which has resulted in a positive inflow of capital. SA has introduced tax proposals to make it a more attractive place for multinational companies working to establish a base for their future African networks. The South African Chamber of Commerce’s business confidence index has increased from 86.4 in February to 88.3 in March which is its highest level since September 2008. This data indicates that the economy has established some momentum and remains resilient in the face of global events.
The South African real estate industry has been a focus of bad news over the last four months and the latest revelation by the EAAB Board President as to the state of the regulatory body appointed by the DTI has not helped.
The industry has struggled with the EAAB for years but has still largely managed to regulate itself led by the ethos and values of leading companies and real estate groups who have been around for 20 years and more. Yes, the industry has had to adapt to lower levels of sales over the last three years but has come through stronger and with more resolve to provide the real estate customer with better service and professionalism.
The number of estate agents has dropped 50% since 2006 and those who are still in the industry are those who have survived three of the toughest years in real estate and who are full time professionals and committed to being trained to be even better than before.
The fact that a very small percentage of operators who do not uphold this professionalism are highlighted by the media should not imply that the industry as a whole is all bad. There are about 100 000 real estate transactions that occur annually in SA and it is reasonable to assume that not all of these occurred without some problem. However, in my 40 years in real estate I still believe that we have one of the best and most sophisticated real estate industries in any emerging economy.