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Solid future for property marketWith South African consumers having experienced some of the most interesting times in economic history, it would be easy to think that battle-weary buyers may hesitate to enter the property market. However, it seems that the opposite may be true as figures show an increase in the average residential demand rating among consumers in the recent months, says Chairman of RE/MAX of Southern Africa, Peter Gilmour.
"Those who have worked in the property industry or have invested in the market have been in the front row seats to the most fascinating economic events we have seen during modern times. We have seen the market yield some amazing returns during the boom with years of rising property prices, then the sub-prime crisis and then what has been dubbed as the Great Recession. Now we are in a recovery stage and many opportunities have opened up in the market for buyers who were previously unable to afford property," says Gilmour.
Generally sentiment among buyers has become more positive, which can be seen in the higher demand for residential property as well as the marginal growth in the real house price index. According to the latest House Price Index (HPI) report by First National Bank's (FNB) Household and Property Sector Strategist John Loos, the recent moderate improvement in the house price growth is partly a result of late real economic growth in 2011. Compared with price levels at the inception of the FNB HPI back in July 2000, real prices were 69.4% higher as at February 2012, while nominal prices were 226.8% higher as at March 2012.
Loos says that with interest rate cuts starting as far back as December 2008 and consumers becoming accustomed to low and stable interest rates, lender and borrowing household's behaviour has become more pro-cyclical and the bad events of the 2008/9 recession and interest rate peaks are becoming nothing more than distant memories. As bad events fade into the past, consumer confidence continues to grow as their perception of risk improves.
"During 2009 many economists predicted that the two years that would follow would be fairly steady and the market would be expected to see a greater recovery during 2012. While not all global property sectors have seen a marked increase in the rate of recovery, the South African market has seen more first-time buyers and investor interest during 2011 and so far in 2012. Although 2012 is not expected to yield spectacular results, positive consumer sentiment is growing among homeowners and the market continues to reflect this in its continually increasing transaction volumes. The South African market has continued to move from strength to strength with improved property sales figures year-on-year. If South African consumers were pessimistic about the market in the past, it is not holding them back from wanting to buy property now," says Gilmour.
He says that numerous local buyers have returned to the market and are taking up the opportunities that have presented themselves. While some still err on the side of caution and believe that house prices will continue to feel the pressure for a while longer, RE/MAX of Southern Africa's sales figures for the first two months of the year are up by over 30% on the same period in 2011. There are also reports that there is a decrease in supply, which is positive in improving the market balance. The FNB Market Strength Index, which represents the demand rating minus the supply rating, moved up from a revised 44.9 in February to 45.2 in March.
Despite the property slump, homeowners in South Africa who have owned their property for over 15 years will have experienced extraordinary house price growth compared with those who purchased their house in the past five years. However, those who hold onto their property will once again see a growth in the price of their home in years to come. According to FNB, the average house price growth for 2012 is expected to be around 6%, compared to 3.2% achieved in 2011.
"Based on the property cycle of the past 25 years, expectations are that the property market will continue to recover both globally and locally. It is during this period of recovery that buyers will find the best property investment opportunities before the beginning of the next boom cycle," Gilmour concludes.