SA Property: Market: What Lies Ahead

The information in this article is courtesy of BetterBond (The road to recovery - December 2008)

With everyone’s eyes fixed on 2010 and the world cup, some may have forgotten about 2009. Many economists are predicting the tough market conditions will continue well into next year even though the first rate cut is expected in December 2008. Developing economies such as South Africa will continue to suffer the impact of the global recession, which means 2009 starts with local markets already on the back foot.

Deon Lessing, marketing director of Betterbond says: “Starting on the long road to recovery, 2009 will still be a tough year for consumers and those in the property industry. Economists predict consumer spending may be at its weakest point in the first half of next year. As interest rates begin to decline, sentiment should start to improve. But in short - a debt riddled society will still be the issue. Interest rates are expected to be cut by at least 300 basis points by the end of 2009, but it will take time to filter through to the market. The banks are still adhering to strict lending criteria, so obtaining mortgages will only be for those with a good payment profile, with a deposit and who can demonstrate affordability.”

According to Jacques du Toit, ABSA senior property analyst, the nominal house price growth is expected to be between 3% to 4% in the 2008-2009 period, while in real terms house prices are set to decline next year.

“The decline in house prices will bring about buying opportunities for investors looking to expand their buy-to-rent portfolio. There will be many property deals available to buyers who have a deposit and clean payment profile or enough money to buy a property with cash. With banks asking for higher deposits and only 50% of bond submissions approved, it will be people with money that will be in the driving seat in 2009. The global recession has also led to the opportunity for South African investors to buy property in countries like the UK, where housing prices have also dropped significantly,” says Lessing.

With continued tough economic conditions, where will bond originators be focusing their efforts? “Our goal next year will be to secure relationships with our partners, the estate agents and the banks. It will be important to acquire the maximum amount of business from agents by ensuring that we can obtain bonds for their clients. No deal is too big or too small. The only way this can be done is for us to be 100% aligned with the lending practises of the banks,” says Lessing.

He says it will be vital for property professionals to also get back to basics, as this is no time for frills. In the past, great market conditions made us complacent, which in turn meant is was more difficult to adapt to the changing market conditions during 2008. We now have our ducks in a row and are ready for 2009 and all the opportunities it will bring.

“2009 is the year to keep it simple and where possible keep expenses down by cutting short-term debt. Property is a medium to long-term investment and if consumers can afford to take advantage of the market downturn, now would be a great time to do it,” Lessing concludes.

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