Monday, 28 June 2010

What sporting events mean for Property in South Africa

28 Jun 2010

Global sporting events tend to not only significantly raise the status of the game, but also property prices in the host city and bring with them a cornucopia of associated benefits.

This is according to Ya’el Geffen, executive director of Sotheby’s International Realty South Africa, who adds that “past international sporting events have proved that being a host city brings investment in public infrastructure, urban regeneration, a significant social impact and an increase in property values”.
“On average, the previous Olympic host cities of Athens, Sydney, Atlanta and Barcelona all outperformed their national markets, with 19% higher property prices in the five years leading up to the games.

“Similarly, before and after the 2002 World Cup in South Korea, property prices increased by as much as 55% over a one-year period before and after the tournament, with properties near the stadiums rocketing by more than 100% in value.”

Geffen says that the 2010 FIFA World Cup has and is going to have a dramatic impact on the country.

“It is estimated that over 370,000 tourists will visit South Africa for the World Cup. They will stay an average 18 days and each is expected to spend around R30k (US$4,500), therefore injecting much-needed money into the economy. Thanks to the World Cup, over R40bn (UD$5,45bn) has been spent on upgrading the country's infrastructure, including roads, airports and public transport as well as the stadiums.

“The long-term benefits include the increase of tourism and the creation of thousands of new jobs. This will, in due course, translate into thousands of new homebuyers and owners.

“From a property perspective we are very excited,” says Geffen.

Charles Smith of Sotheby’s International Realty in London, host city of the 2012 Summer Olympic Games, recognises that it is not just the immediate rise in property prices that will have a positive impact on the United Kingdom capital – the legacy of the Olympic zone is also crucial.

“Global sporting events can be the catalyst to make major infrastructure projects happen, improving transport connections and leisure facilities, benefitting the city in the long-term long after the games are over,” says Smith.

The announcement that Rio de Janeiro will host both the World Cup in 2014 and the Olympics in 2016 already is having positive consequences.

“Investment in real estate has been rising in Brazil since 2008 and there have been significant increases in land speculation, which have increased residential property prices by 10% to 20%.

“The Abadi (Brazilian Association of Real Estate Management) has reported a greater impact on rising real estate values in areas where the Olympics will be taking place, such as Barra da Tijuca,” says Guilherme F.Caldeira of Brazil Sotheby’s International Realty.

Vancouver also has reported many favourable benefits due to the global exposure of hosting the 2010 Winter Olympics earlier this year.

“The spotlight on Vancouver has educated people about Canada’s sophisticated economy,” says Anna-Maria Retsinas of Sotheby’s International Realty Canada in Vancouver.

“There has been significant foreign investment in and around Vancouver and British Columbia from Europe and Asia as a direct result. In turn, we are experiencing an increasing number of inquiries for our local properties.”
Meanwhile, Grinrod Bank's chief investment officer, Ian Anderson, said the World Cup has “helped South Africa weather the worst recession in 80 years’’.
“Unfortunately, the real estate markets were at the heart of the recession and as such have a fairly bad reputation at the moment.

Anderson noted that on an international basis banks were very generous in their lending and had lent to people that probably shouldn’t have obtained loans in the first place. “The result was that when things got tough, a substantial number of foreclosures took place in the US, Europe and the UK.”

He said that in South Africa banks had been faced with a completely different set of circumstances. “We are not in the same predicament as the rest of the world.”
According to Anderson South African banks had been a lot more circumspect in their lending practices. This was mainly due to restrictions imposed by the IMF and the World Bank. “Our banks performed well from 2003 to 2008.”

He said in the last four years the South African construction industry has been focusing virtually exclusively on delivery for the World Cup, said Anderson, who believes that while there were developers who were itching to develop, they found that there simply wasn’t a construction company available to build anything of any great significance.

In addition, he said that construction costs rose significantly and while he wasn’t sure of the exact figure, he believed these were around the 40% per annum mark, putting a further damper on any development actively. As a result of this, there was a strong balance between supply and demand, particularly in the commercial sector.

There hasn’t been a significant decline in property prices and in his opinion, the South African property market was extremely well positioned at the moment, with interest rates expected to remain stable and no pressure on rentals. “Although there are certain problems in the commercial sector, this is the exception rather that the rule.”

The one area where there is significant over-capacity is hotels. He noted that a recent report predicted that 20% of South African hotels will fail within the next 18 months. The One and Only hotel in Cape Town will at no point during the World Cup be more than 40% occupied, and in fact will only have a 20% occupancy rate during most of the tournament.

It is not just the high-end hotels that will be affected, he said. “While the property market has remained balanced, hotels were the one area that hadn’t.”
FNB Commercial Property Economist John Loos has said that while an influx of foreign tourists would up the interest in the residential property market it was unlikely to be sufficient enough to make a meaningful difference to the overall market.

"One could expect some increase in foreign visitor viewing, and possibly demand too, in some of the luxury areas of Cape Town and the southern Cape for instance.

"However, I remain of the view that this number won't be big enough to make a meaningful difference to the overall residential market of the country," Loos said.
Loos painted an optimistic longer-term picture. "I am very positive about the long-term benefits of the World Cup, along with all the other international events hosted before it, in terms of gradually changing the perceptions of the country and its organisational capacity for the better.

"And insofar as it achieves this, long-term economic growth can benefit from higher interest from investors. Anything that's good for the economy is good for property," he said.

The economist said he remained of the belief that short-term direct impacts in terms of World Cup visitor residential demand would be small in the grander scheme of things.

However, agents and principals report that World Cup visitors as well as locals are indeed taking time out to view properties and enquiries for leisure properties are increasing.

Ling Dobson, Pam Golding Properties’ (PGP) area principal in Knysna, says there’s been a surge in attendance at show days over the past two weekends.

“We have had enquiries from French and Italian visitors who are here for the World Cup, who are mainly interested in properties with sea views in the R3-R5m price range, for use as leisure homes when visiting South Africa on holiday. We are also in contact with an Italian who is travelling to Knysna in two weeks’ time to view properties with a view to purchase. Even just prior to the World Cup we sold a property in Knysna to French buyers from Brenton-on-Sea.”

“However, what is interesting is that suddenly the positive sentiment generally seems to have sparked a dramatic increase in enquiries from South African home buyers from Johannesburg, Durban and Cape Town, as well as local buyers in this area. While this demand is mainly for homes, there are also enquiries for commercial properties, which is a very positive indicator,” she says.

In KwaZulu-Natal, PGP’s Umhlanga office reports strong interest from a number of German investors who are seeking leisure homes in the R5m price range, located close to the beach and with sea views. “This is a group of friends who are all interested in property here. They are very impressed with Umhlanga. In addition, we are assisting a Brazilian buyer, who says this is a fantastic place to buy property, who is looking in the price range up to R1,7m. Another visitor, a young, male UK buyer, is looking for an apartment close to the beach and in the R2m price bracket,” says Elwyn Schenk, PGP’s area principal.

PGP area principal for Rustenburg, Ian Straarup, says overseas buyers are mainly interested in properties in a tranquil, scenic environment, particularly those which have a strong African flavour, for example game farms and smallholdings. “They are looking for value for money and probably properties ranging in size from 15ha, and not necessarily in residential areas.”

Meanwhile from Germany, Gaby Moessner, PGP’s manager based in the Munich area, reports that World Cup Soccer fever is running high with considerable interest being shown in South Africa. “All over Europe and especially in Germany there is huge media exposure for South Africa.

“During 2009 and prior to this event 50% of my clients were those interested in buying a property in South Africa with a view to the World Cup, for example a guesthouse or B&B. These buyers were mainly from Germany, Austria and Switzerland, with the main focus on the Western Cape and Somerset West in particular, with the second highest interest shown in Mpumalanga in areas such as White River and Hoedspruit, with proximity to Kruger Park and value for money of key importance.”

In terms of residential property, Moessner says currently enquiries are mainly for houses and apartments initially for holiday and later for retirement use, in the price range from R2-R3,5m and situated along the Garden Route, Eastern Cape and south coast of KwaZulu-Natal.

“However, these are clients who have already visited South Africa or who are planning a trip after the World Cup. I definitely see good prospects for property sales following this event as many of our buyers first research the market, and may then consider looking at homes for leisure or retirement at competitive prices,” she says.

Eugene Brink and I-Net Bridge

Friday, 4 June 2010

Threats to SA's Property Market

PRETORIA - Steep increases in municipal rates, electricity and service charges will be one of the factors to watch in the property market according to Absa's senior Property Analyst Jacques du Toit. This and possible increases in interest rates were two of the potential threats to the property market in the coming months.

Du Toit recently addressed the 2010 ARELLO District 6 meeting in Sandton about the prospects of the local housing market going forward and said it was unlikely that the property market was heading for a boom, despite the recent recovery in house prices. The Association of Real Estate Licence Law Officials (ARELLO) is an international organisation and South Africa forms part of ARELLO District 6, which consists of non-American countries.

In a post-conference interview with Realestateweb, Du Toit said he expected the recovery in the housing market to be gradual and dependent on the income position of households. "Debt levels are high. There have been job losses and large scale unemployment during the course of 2009. Also in the first quarter of 2010 the latest figures from Statistics SA show that there has been another round of job losses. This has an impact on the disposable income of households and while this situation persists the property market will remain under pressure."

Unlike some analysts Du Toit doesn't believe that we are headed for a double recessionary dip, but cautions that the situation in Europe may have a macroeconomic spill-over, which will impact on South Africa. "At this stage it doesn't look like this will have a major effect on South Africa, but as far as house price growth is concerned we are expecting somewhat slower year-on-year growth in the second half of 2010."

Du Toit notes that the leisure market has been slow to recover and that the coastal market has remained sluggish because of that. This however may present opportunities for investors who are looking for "good buys".

A hike in interest rates may also become a factor in the second half of 2011. "We feel that is when inflationary pressures will start to escalate, especially due to electricity and other service hikes and government may increase interest rates in an effort to curb inflation."

We asked how big an impact he expects electricity and municipal rate hikes to have on homeowners: "I believe this is going to play an increasing role in the choices prospective homebuyers make in the future. We'll be seeing major hikes in electricity and the resulting impact on the cost of running a household. There is also the issue of increasing rates, and buyers will take this into account when deciding on a property."

YDL Investment Property CEO Anton de Leeuw agrees with Du Toit's analysis. "From an investment perspective there has been a significant drop in the buy-to-let market. Investors are worried about returns and they are worried that prices may contract even further. What we've found with our client base is that there has been a significant shift to buying distressed properties, where properties are bought at substantial discount to market value. "

De Leeuw says despite the difficult market conditions their investors are still looking at average yields of about 10%, but agrees that profits in the property market are to be made in the long haul, as quick turnaround speculative profit opportunities are becoming harder to come by.