Friday, 30 July 2010

Property markets still hibernating....

The property markets across the board are still in hibernation mode, according to the latest Rode’s Report on the State of the Property Market.

The lagged impact of the business cycle on the property market is especially evident in the offices segment. For instance, it is only the Durban decentralized areas that could attain any growth on a year ago (a nominal +5%) that exceeds the expected growth rate in building–cost inflation (at +2,6%).

For Cape Town, Johannesburg and Pretoria, growth was, on average, below that of building-cost inflation, and real rentals are currently lower than they were a year ago.Says Erwin Rode of property economists Rode & Associates: “Even in the industrial property market, where manufacturing activity and retail sales are said to be in recovery mode, the overall strength and stability of this recovery remains an uncertainty, particularly against the backdrop of both a South African economy that continues to shed jobs and a still-wobbly world economy.”Such uncertainty in the industrial property market also extends to prospects for market rentals, with these rentals continuing to contract across the country (specifically in the Central Witwatersrand, Durban, Port Elizabeth and the Cape Peninsula).Likewise, flat rentals in Durban and Cape Town could only achieve a nominal 1% growth in the first quarter, while Johannesburg and Pretoria rentals were at the same level of a year ago.

However, notes Rode, an interesting (and “premature”) phenomenon over the past few months has been the recovery in the growth of nominal house prices. “After reaching its lowest point in the first half of 2009, yearly growth has accelerated to almost 14% in April, up from 12% in March, possibly due to easing credit standards,” says Rode. But, he warns, “Once the base effects have played themselves out, one can again expect house prices – especially in the lower-priced segments – to show more moderate growth rates.

The reasons are household coffers that are still under pressure, job insecurity and house prices themselves that continue to remain high in real terms.”Capitalization rates have remained at roughly the same levels at which they were at the end of last year. “The adjective that best describes this situation,” notes Rode, “is ‘stable’”.

Capitalization rates are the property equivalent of the forward earnings yield of shares.“Nevertheless, considering that market rentals of offices, industrials and malls are shrinking in real terms, this situation could eventually lead to investors requiring higher minimum income returns to invest in property, and this would tend to depress market values.”However, because of low loan-to-value (LTV) ratios traditionally enforced by SA banks, landlords in South Africa are generally under little duress to sell.

“This explains the extraordinary stability of the premium property market”, says Rode.

Friday, 16 July 2010

Property recovery still '12 to 18 months off'

The residential property market in South Africa is still coming to terms with the fallout from the economic crisis, said Auction Alliance CEO Rael Levitt on Monday.

According to SA's largest auction group, sales trading activity is increasing as home buyers take advantage of a slower recovery.

"South Africans are now seeing a repeat of the lengthy property downturn last experienced in the early 1990's. Opportunistic buyers are finding great deals which is boosting trading volume.

"What is unique about this property contraction is that low values are coinciding with low interest rates. It's thus bargain hunting season for those with access to funding," says Levitt.
According to Levitt, the outlook for the second half of 2010 is flat.

The world cup has been a great shot in the arm for local tourism and retail trading but a full property recovery is still 12-18 months off, even in a reasonable interest rate environment and even with reasonable market stability, says Levitt.

"Those who were expecting the South African real estate market to quickly recover in the second half of 2010, after the world cup, may be in for a long wait."
Alliance is predicting a flat real estate market with no increase in value through December 2010.
This is echoed by Absa senior property analyst, Jacques Du Toit, who says that year-on-year growth in house prices may peak soon.

Du Toit says house prices rose by 14,8% year-on-year last month and that Absa was forecasting slower growth at 8% to 9% until the end of this year.

Levitt concurs with this view and believes that from the beginning of next year prices are projected to increase at a stronger rate.

"Depending on global macro-economic trends we could end up running through a strong cycle only next year," warns Levitt, adding that a property contraction can last for several years and house values could move up more strongly or more weakly, depending on any number of circumstances."

"Certain sectors in the residential property market, such as leisure property, new property developments and vacant land sales may weaken over the next six months as a delayed pipeline of distressed properties begins to liquidate," says Levitt.

"Signs of stabilisation and growth in over supplied sectors cannot be hailed as part of a recovery and may soon recede as an overhang of the shadow inventory of distressed properties waits to enter the market."

The general outlook that the housing market has finally bottomed may well be "premature" optimism.

The single largest impediment to a recovery in the housing market is the large number of loans that are either in a delinquent status or are destined to liquidate.

"We have seen a slowdown in the number of distressed properties hitting the market, but this doesn't mean that the banks have not been developing a pipeline of future delinquencies due to clients who were assisted with short term bond relief.

"One must remember that many banks have assisted their debtors reschedule debt, but if property price inflation levels off for the next 6 months, these debtors will have to start normalising their loans," Levitt added.

"The distressed backlog is due to a longer timeline for loan foreclosures in South Africa", explains Levitt.

"In other words, loans continue to transition into the delinquency pipeline at a rapid pace, but are moving out at a very slow pace."

He said that many distressed loans are "destined to liquidate" and will impact on the recovery but at the same time allow cash-flush buyers the ability to go bargain hunting over the next few months.

"We are concerned that, in light of this housing overhang, the stabilisation we have seen in home prices the last few months is temporary," says Levitt.

"That said, there is a window of opportunity for investors to get into a cheap market that will recover in the medium and long term."

Source: I-Net Bridge

Friday, 9 July 2010

Strong foreign interest in SA property

Despite the precariousness of the world’s economy, there is still a lot of foreign interest in South African property, with investors from the United Kingdom, Germany, Australia and even the USA eyeing property here.

A recent analysis of traffic on the Lew Geffen Sotheby’s International Realty website shows that the number of international visits to the website is on the up.

The French seem to be the most interested in property in South Africa, with the number of French visitors to the site up by 62%. The number of website visits from people in Australia, Canada and the UK is also up by 52%, 32% and 23% respectively.

Visits by Germans have increased by 14% and American visitors have also increased by 10%.
Properties in the bracket of between R3m to R12m get the most hits from international visitors showing that it’s mainly up-market holiday homes that foreigners are after. There is also growing interest in smaller, lock-up-and-go properties in metropolitan areas suggesting that corporate travellers want a little place to call home when they are in the country on business rather than staying in a hotel.

“There has always been significant interest in SA property from Europeans, particularly people from the United Kingdom. Generally, they buy properties here for holiday purposes or as retirement homes.

“Interest is now more widespread, with people from all over the world looking into buying property here. Where it was once primarily luxury holiday homes in coastal regions that were being snapped up by foreigners, we are seeing an increase in the number of smaller properties in the metro areas of Johannesburg and Cape Town being sold to international investors,” says Jason Rohde, CEO of Lew Geffen Sotheby’s International Realty South Africa.

Rohde points out though that while foreign interest in SA property is growing, overseas buyers are more cautious about actually taking the plunge.

“While it is only the wealthy who are able to afford to buy homes overseas, they are not entirely untouched by economic factors so they aren’t as ready to jump into actually buying property as they perhaps were two years ago. The strengthening of the rand means that the foreigners’ purchasing power isn’t quite what it was either.

“As a result, foreign buyers are more price-sensitive and are looking for value for money. As with local investors, they are also weighing up their options more carefully, taking into account other factors such as security. The home has got to meet their criteria, including price, in order for them to make a commitment.

“Generally speaking, there is an oversupply of housing stock across most price categories, so it is essentially a buyers’ market. Sellers must be realistic about the asking price on their properties if they want to ensure a sale. They must present a fair deal,” Rohde advises.

Dr Andrew Golding, CE of the Pam Golding Property (PGP) group, says South Africa remains a sought-after property investment location among high net worth German investors.

“While the Soccer World Cup has focused increasing worldwide attention on South Africa, the fact is that even amid the global economic downturn South Africa has remained prominently on the radar of German property investors as a market to watch. Over the past year, Gaby Mo√ęssner, who represents PGP in Germany, has seen increasing interest among German investors in leisure or holiday homes in South Africa.

“During this period their main areas of interest for such homes include the Eastern Cape with its exceptional value for money, the Garden Route, and the Cape and its popular Winelands region, particularly its scenic golf estates.

"As a rule and understandably, overseas buyers do not make quick decisions regarding property investment in overseas countries, including South Africa. And the Soccer World Cup – being a once-off event – may not necessarily influence their investment decision, although it certainly is considerably raising our country's profile abroad.

"Interestingly we've noted that several PGP clients in Germany have recently sold their properties in Spain and are looking to invest elsewhere. Certainly with our beautiful coastlines, spectacular natural scenery and appealing weather conditions during the harsh European winter months, South Africa can compete with other countries, such as Croatia and Turkey, which are currently of high interest among investors wishing to acquire holiday homes," adds Dr Golding.

Eugene Brink