Did the property bubble ever burst?
The past ten years in the South African residential property sector have been a "rollercoaster ride".
This is the view of FNB property strategist John Loos speaking at FNB’s 10 Years of Property Barometer briefing, who noted that when FNB’s Property Barometer was launched in November 2004, the residential property market was arguably at its peak. At 35 percent, average house price inflation was fast approaching its year-on-year peak, with demand far outstripping supply.
Ultimately, Loos says, you could call it a “bubble”, or a major “market overshoot”, but it wasn’t purely about speculative activity, despite what some think. The property boom of the last decade was kick-started by rational economic drivers. Economic growth accelerated when democracy arrived in South Africa in 1994 and the country emerged from international economic isolation. Then, the late-1990s brought a sharp drop in interest rates, as SA shifted to Official CPI Inflation targeting, and abandoned the use of interest rates to influence the value of the rand exchange rate.
Now a good time to buy and sell property
The residential property market will remain the same for the last quarter of 2014 and the first half of 2015 for the larger metros of Pretoria, Johannesburg, Cape Town, Durban and smaller cities, Port Elizabeth, East London and Bloemfontein.
This is according to Herschel Jawitz, CEO of Jawitz Properties, who says there is a shortage of properties for sale in these markets, and good demand from buyers across almost all price levels. The first-time buyer sectional title market (up to R2 million) and the family home market (up to R4 million), are experiencing the most activity. The luxury market is also seeing significantly better demand, as is vacant land, as buyers in that market choose to build themselves due to the stock shortage.
This imbalance between supply and demand has resulted in better than expected price growth of between 8 and 11 percent in nominal terms in 2014. This is likely to continue at a slightly slower rate for the remainder of 2014 and into 2015, says Jawitz.
Home loan lending severely curtailed
Bond originators will have to become more skilled and more effective in the coming year if they are to be successful in keeping the flow of mortgage loans to the public at a reasonably satisfactory level.
This is according to Bill Rawson, Chairman of the Rawson Property Group, who says the end of September review of home loans by Absa has shown that the total value of outstanding balances in the South African household sector has dropped by R2.9 billion to R1.394 billion. He says this figure was largely due to unsecured loans, overdrafts, credit cards, general loans and advances but, regrettably, mortgage loans were also among the credit categories to experience a slowdown. By Absa’s calculations, they grew by only 2.2 percent year-on-year, he says.
Rawson says apart from lower overall economic growth and inflation, both of which have impacted on the household consumer, Absa have revealed that lending has been severely curtailed by a significant number of credit-active consumers having impaired credit records.
Agents not advising buyers properly
The South Gauteng High Court has dismissed an urgent application with costs by Cell C against a banner critical of service at one of its retail outlets.
This judgement followed the putting up of a huge banner on a busy road by an irate customer criticising Cell C after attempting to have his phone repaired and still being levied with a bill for four months while unable to use his phone.
John Graham, CEO of HouseCheck, says the massive South African estate agency industry should anticipate an irate home buyer taking similar action.
Graham says his company receives numerous and regular complaints from home buying consumers who feel cheated after moving into their new home.
Saving on electricity in sect.titles
With Eskom warning SA earlier in November of rolling blackouts due to one of their coal silos collapsing, it would be wise for sectional title schemes to consider installing power saving devices within their schemes and units, and possibly prepaid electricity meters, so that the residents can monitor and control their power usage more efficiently.
This is according to Mandi Hanekom, operations manager of the levy finance company Propell, who says installing energy-saving equipment can all help in keeping the electricity consumption in a sectional title scheme under control, as well as increase the property values in the scheme. The equipment can include solar panels or heat pumps to heat water in units, solar powered outdoor lighting, LED or movement activated lighting in the common areas, and other energy saving devices such as solar power to the electric gate and intercom.
Investors beware "analysis paralysis"
Emotion and logic each have a role to play in decision-making, whether personal or business. But, if you want to successfully invest in property, it’s vital to have a practical and logical system in place that allows you to make good decisions based on the facts.
Beware of ‘analysis paralysis’, warns Just Property Group's, Paul Stevens, who says many deals have fallen through because some investors are unable to make a solid decision.
He says overly analytical people will scrutinise a deal beyond what is necessary, which is when analysis paralysis happens. He says buying a property for investment is never perfect, but analytical people can have a problem with this. “They can often suffer from the fact that real estate involves both give and take. Often, they never get into the property game as they strangle themselves with their own reasoning before they even get started."
Stevens shares some helpful tips on how to overcome 'analysis paralysis'.
Banks make home loans more affordable
Back in the pre-2007 property heydays it was quite easy to obtain a home loan at favourable rates - even as a first-time buyer. Since then it’s been tough going with local banks increasing their scrutiny of applicants, tightening their lending procedures and offering fewer, smaller home loans.
This is according to Bruce Swain, MD of Leapfrog Property Group, who says based on new data released from home loan originator BetterBond, it seems that this situation is changing, with the latest bank policies painting a rosier picture.
Banks are willing to lend
“It’s certainly been harder for buyers to obtain home loans over the past few years and we’re very excited to see that the banks are starting to ease up on their lending policies,” says Swain. He says that the support of the banks is needed to boost the market that’s been struggling in recent times.
Swain gives a summary of what prospective home loan applicants can expect from our national banks: