South Africans Face Loss of Property Rights

Land Bill Has Wide Implications

An article published by Realestateweb has drawn attention to the government’s proposed Land Bill and the possibility that it could be about more than just real estate, potentially allowing the government to take everything you own, including your intellectual property.

This message about the proposed land expropriation bill soon to come before parliament came from a group of well-respected economic and constitutional thinkers at a conference on the implications of the Land Bill held in Cape Town on Monday.

The conference delegates discussed how the Bill has ominous implications for the country’s economy, as well as South African society. The Bill’s main problem when it comes to property ownership is that it gives the state the right to take your house and land without paying a market-related price for it. In other words, it becomes a “take now, fight about the details later” approach.

South African farmers raised the alarm about the Bill initially, as much of the focus is on agricultural land in a bid to speed up the land redistribution program. Those in the know predict that food security and a loss of investor confidence, similar to what has happened in nearby Zimbabwe, can be expected if the new law is enacted.

Dave Steward, executive director of the FW de Klerk Foundation that played host to the conference, highlighted a “particularly nasty clause”, which gives the Minister the right to appropriate any property. This obviously has much wider implications than those specifically related to land reform.

“It could be shares. It could be on behalf of any juristic person…this could be a company where they have tried to negotiate and failed,” said Steward, indicating that this “looks like a massive expansion of BEE (Black Economic Empowerment)”. Steward goes on to say that, “It is horrifying in its implications,” and that there could be a BEE company, which could simply ask the Minister to expropriate shares.

Dr Leon Louw of the Free Market Foundation said that the Bill “is about all forms of property, including intellectual property,” and cited examples of software copyright, school text book copyright, pharmaceutical company rights over medicines and shares, as being among the types of property that might be expropriated in terms of the proposed law.

Former head of the Afrikaanse Handelsinstituut and chief economist at Transnet, Ulrich Joubert warned that the South African economy is particularly vulnerable to the loss of capital and skills. The economic growth in the 1990s and 2000s was spurred on to a large extent by consumer spending. Foreign investment is largely based on portfolios and this means easy withdrawal from South Africa.

Joubert asserted that South Africa needs to avoid adding to the risk perceptions already making investors nervous by threatening property rights entrenched in the constitution. “We need to create an environment where investors can be confident of getting a return on investment – without being expropriated,” he urged.

Schlemmer, a constitutional expert, believes that it takes a long time for events surrounding legislature to “penetrate through to the population”. At the moment, only a small number of South Africans are actually aware of the looming threat and its implications. Considering the already growing negative sentiment, he suggests that now would be a “very bad time to start messing with land ownership and property”.

He went on to say that the government appears to be disguising the lack of capacity of government departments and the lack of delivery around the land question with this new legislation. Compared to the government’s housing challenge, the land issue is a relatively “small problem”, Schlemmer said in reference to a provision in the Bill for the expropriation of real estate in towns and cities.

A number of political leaders also attended the conference, including Democratic Alliance leader Helen Zille. She referred to the legislation as a “wedge issue”, which the ANC “uses before elections to mobilize people on the basis of race to vote for the ANC”. Zille went on to say that, “There are people in the ANC who are as appalled. What we are seeing around expropriation is symptomatic of what we will be seeing in the years ahead. What we are seeing is a government claiming to represent the will of the majority – it is not in the interests of the majority…it isn’t the will of the majority. We have a venal minority posing as a righteous majority – using the race card”.

The ANC did not attend the conference and when asked for an explanation, Steward said, “We invited people from their portfolio committee and relevant government departments. I guess they are all busy on a Monday afternoon.”

The Bill was meant to go in front of the National Assembly this week, but the “fact they decided to postpone it might be a positive indication,” said Steward.

The information in this article is courtesy of Jackie Cameron (“Mind losing your house, business, shares and book royalties?”, Realestateweb, 4 August 2008).

Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.

There's More to Owning Property than Meets the Eye

Owning Property Costs Add Up

An article published on the property iafrica website indicates that the there is more than meets the eye when it comes to owning property. The current gap between asking prices and selling prices continues to widen, but while this may create more value for money investment opportunities in the residential property market, it does not necessarily mean that you can afford to buy that dream home. This is because the cost of home ownership could be a lot more than you might think.

Marketing director at Betterbond, Deon Lessing says that many people renting property often think that they could easily buy a home and pay the money that would have gone towards rent as their monthly bond. “But what prospective buyers need to understand is that the true cost of home ownership involves a lot more than just a monthly bond payment,” he adds. “Underestimating the true costs of owning and maintaining a house and the land on which it sits is one mistake first-time buyers often make,” Lessing asserts.

Putting interest rate increases aside; there are a number of expenses that homeowners need to take into consideration:

Homeowners insurance: This is a prerequisite when it comes to applying for a home loan. Homeowners insurance cover (HOC) protects owners of property from damage caused to the actual building and all the fixtures and fittings therein. The cover includes fire damage, lightning, explosions, storms, earthquakes, water, hail and even accidental damage to sinks, toilet bowls or other sanitary ware.

Rates and taxes/levies: Homes that are free-standing are subject to rates and taxes determined by the municipality, which cover the collection of rubbish, electricity and water, while sectional title units or complexes charge each unit a levy to cover these costs. Often these levies may include water, but exclude electricity.

Household contents insurance: While this form of insurance is optional, it covers all your personal belongings contained in your home and with the ever-increasing level of crime in South Africa, many households opt for this kind of insurance cover.

Security: Putting in burglar bars or paying an alarm company to fit a security system linked to armed response is considered a necessity, even if your home is located within a security complex.

Maintenance costs: When you own a home, it becomes your responsibility to take care of all the repair work and maintenance costs. There will no longer be a landlord to help you on this. While the cost of maintaining your home may vary depending on the size, Lessing suggests that putting aside R1000 a month is generally a good average amount. Remember that if you do not keep up with the maintenance then the costs could grow exponentially. A house that is in less than perfect condition tends to be on the market longer and sells for less than a house that has been impeccably maintained. Other areas of a home that require maintenance include the garden, swimming pool, painting, carpet repair and replacement, as well as other incidentals that are bound to come up through the ownership cycle.

According to Lessing, “When calculating your total cost of home ownership, you should add up to 40 percent to your base bond payment and that is the amount that you will eventually have to pay. The best way to be ready for the cost of owning and maintaining your home is to plan for it”.

The information in this article is courtesy of Property iAfrica (“True cost of ownership”, 4 August 2008).

Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.

Residential Property Still Declining in Value

House Prices Still Dropping

An article by I-Net Bridge published in The Times indicates that Standard Bank’s median house price dropped to R570 000 in July, which reflects a contraction of 2.6% year-on-year.

The banking group’s five-month moving average growth rate in the median house price was recorded at 8.2%. In June, the median house price figure stood at R550 000. This is essentially the middle price on Standard Bank’s home loans portfolio and can be considered a reasonably accurate picture of national house price trends, given the group’s market share in the national mortgage industry.

Standard Bank said that this figure is an improvement on the negative growth rates seen in the three months prior. “South Africa’s intensifying economic slowdown and the positive developments on the inflation front suggest that we may be nearing or at a peak in monetary policy tightening. However, the residential property market is unlikely to exit its quagmire in the near term, essentially due to the precarious state of household finances,” according to the group.

The bank said that recent point estimates in the Standard Bank median house price have exaggerated the extent of the fall in national residential property prices. This has been a result of the National Credit Act-induced base effect, which was established in the months prior to the Act’s implementation last year.

There is uncertainty around the possibility of more stringent credit granting criteria, which led to a bigger proportion of higher valued houses in the underlying sample of home loans from which the median house price was calculated.

Since then, the reduced affordability of housing has resulted in a decline in the demand for residential property and a significant softening in the growth of house prices. This has only been exacerbated by the base effect, resulting in deep negative year-on-year growth rates in the last few months of 2008.

“We had anticipated that, in the second half of 2008, outcomes in the median house price would present a clearer portrayal of house price trends at the national level as the distorting impact of the high base effect alluded to earlier diminishes. The July outcome is, in our view, a better reflection of aggregate house price trends,” said the bank.

The factors primarily driving the residential property market are interest rates, inflation, employment growth and consumer sentiment. Currently, these factors suggest that the housing market will continue to remain weak over the next 12 months. South Africa’s intensifying slowdown in growth will continue to negatively impact the residential property market. Standard Bank added that the residential property market would remain under pressure for the rest of the year and possibly for the first half of 2009.

The information in this article is courtesy of I-Net Bridge (“Standard Bank: July house prices down”, The Times, 1 August 2008).

Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.

High End Property Market Suffering in SA

Shock Drop for High-End House Prices

An article in Business Day has drawn attention to a shock prediction for high-end house price decline. A leading property expert says that house prices could fall as much as 40% by year-end, especially at the top end of the market.

A scenario of rising interest rates and high inflation has intensified pressure on the residential property sector since the start of 2008. A major player in real estate, Lew Geffen, chairman of Lew Geffen Sotheby’s International said that the predicted 40% drop meant the residential market was essentially going to “roll back two years”. He warned that the “prices of two years ago will be the prices at year end”.

Geffen indicated that his view was brought on by the fact that banks are now only offering mortgages where clients put in 5%-25% equity. An official communication from ABSA to his group stated that the bank would provide 100% home loans only for properties valued up to R800 000. For properties valued from R800 000 to R2,7m, the bank was granting 95% loans and for those above R2,7m up to R4m, it was providing 90% loans.

“This means the higher the price of property, the more equity the prospective home owner has to put in. This indicates that the banks see attrition in the market in the bracket valued from R3m upwards and less attrition in the lower-priced segments,” explained Geffen.

He adds that the drop would be coming off a high base, as there was a price increase of 35% between 2006 and 2007, with a further increase of 15%-20% in 2007-2008. Geffen stressed that the property market is tough and homeowners are coming under increased pressure.

In order to get a R2m bond today, the person would have to earn R87 000 a month and still have to put in equity. Buyers who overcapitalized themselves last year and could not afford bond repayments would now have to downgrade and buy cheaper homes.

A memorandum sent out by Geffen to his staff about “recessionary strategies” in the residential property market indicated that there were 60% fewer buyers in the market than at the same time last year, with poor attendance being experienced at show houses. Sales occurred only when the agent used “aggressive parameters” and convinced the seller to drop the price 40%.

Property economist Erwin Rode of Rode & Associates said that on average prices could decline by up to 10%. “The higher you go up the price scale, the more it could be,” he said. “But one mustn’t confuse a sharp drop in the number of transactions with a decline in prices. The two are not highly correlated. The two are weakly correlated. It is important not to overreact”.

David Green, MD of Pace Property Group, said that it was important to “segment the market” and the assumption was that the lower end of the residential market would be less affected by value depreciation than the middle section of the market.

Green indicated that the market, particularly for homes worth more than R2m would be the “most vulnerable”, largely as a result of high gearing levels taken by the buyers. He said that this applied particularly to those purchasers who had acquired property in the past 2 years.

The information in this article is courtesy of Nick Wilson (“South Africa: High-End House Prices Face Shock 40 Percent Drop”, Business Day, 5 June 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

Report Shows Good News for SA Property

Surprisingly Good News for SA Property

The Bizcommunity website has published an article detailing evidence released by a recent report that reveals South Africa’s property market is in good shape and that while growth may be slowing in certain cities, actual property prices are not dropping.

Knowledge Factory, a leading marketing insights company, released their “Report on South African Metropolitan Areas: Property Price Growth”, which bases its data derived from the company’s popular South African Property Transfer Guide (SAPTG). Essentially, the data presents an ‘overview of both historical trends and predicted property price growth rates for South Africa’s major cities’.

Veronica Kotze, regional sales consultant in the Western Cape for the SAPTG authored the report and says it “might surprise some property professionals because it confirms that property prices have not dropped recently, but are just growing at slower rates in some areas than has been previously experienced”. She adds that, “It’s really a ‘good news all round’ report. Overall, the whole country is in good shape and has been experiencing strong growth everywhere”.

All of the SAPTG information is based on figures garnered from the latest Deeds Office data, in conjunction with other proprietary datasets obtained by Knowledge Factory and this report is no different. The major cities covered include Bloemfontein, Cape Town, Durban, East London, Johannesburg, Port Elizabeth and Pretoria. The properties examined included all free standing and sectional title homes larger than 40m², but excluded those properties categorized as smallholdings or farms.

“We also used median purchased prices, as opposed to averages, to make the data as accurate as possible,” Kotze explains, “because we’re obviously dealing with very large areas and extremely diverse property types”. As well as indicating median prices for the past three years, together with the year-on-year growth rate achieved, the report also makes predictions about expected growth for 2009 and 2010. “Although it should be noted that these forecasts do not take economic factors, such as the impact of interest rates, into consideration,” says Kotze.

Johannesburg recorded a price growth rate of 21% between 2006 and 2007, but this has dropped dramatically between 2007 and 2008 to -17%. This is something that Kotze believes is a normal indication of the end of a city’s property boom and should be “no cause for alarm”.

According to Kotze, “Johannesburg has, to a large extent, led the national property boom of recent years and so it is natural that it should also be the first city showing a slight downward trend because of demand dropping off. There has been a slight drop in prices, as the result of a combination of complex factors, but generally, it still continues to grow, just not as rapidly”. She is also confident that if the report were extended for another five years, it would balance out.

Pretoria has been experiencing a similar type of growth as Johannesburg, but not quite so acutely. The city enjoyed a 14% price growth rate between 2006 and 2007, but this has tapered off to 4% between 2007 and 2008. “Pretoria has always fluctuated less and been more stable than Johannesburg,” says Kotze. “[T]he median price of property is higher than in Johannesburg. This suggests that the city doesn’t have as much middle to low cost housing and therefore, has older, more stable residential areas”.

The property price growth rate in Cape Town is also slowing down and this indicates that the property boom is also tapering off there. The growth rate of 22% recorded between 2006 and 2007 dropped to 6% between 2007 and 2008, but the city continues to offer the highest median values for property found across the country.

In stark contrast to the three major metropolitan areas in South Africa, regional cities like Bloemfontein, East London and Port Elizabeth are currently experiencing their own property booms and enjoying healthy property price growth rates of 40%, 30% and 14% respectively. “This is good news,” says Kotze, “and a reflection of both big economic injections, like the building of the 2010 stadiums and strong property development”. However, she does expert these growth rates to taper off in the coming years.

While the report shows that some metropolitan areas are experiencing significant growth and prices are coming down in others, Kotze stresses that this is really just a reflection of where each city is in the property cycle and current levels of demand for property, rather than the actual value of the property within it.

“This report is only a very high-level snapshot of a complex set of underlying conditions,” adds Kotze, “but it still clearly shows that property prices have not dropped. They are just growing at a slower rate than they have in recent years. Some properties have indeed been sold ‘at a lower price’, probably due to recent rate increases, but this is not a trend yet. Further hikes and other economic pressures may very well change that. It may well take longer to sell a property in the three big cities right now, particularly in relation to expectations that were set three or four years ago, but the value of property is still growing”.

The information in this article is courtesy of Knowledge Factory (“Report reveals good news for South African property market”, Bizcommunity, 2 June 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

SA Market Ripe for Property Investment

Expert Says Invest in Property

An article published on the Bizcommunity website reports on a recent visit by Dolf de Roos to South Africa. De Roos is an international speaker, educator, investor and author of eight best-selling books on property, including the New York Times bestseller, Real Estate Riches. He has run property investment seminars for over 20 years and is “passionate about the psychology of wealth”.

During a recent presentation made to 800 guests hosted by the Private Property Group at Montecasino, de Roos put across a strong message that “there is ample opportunity to generate wealth through property, especially in our current economic climate”. Private Property sponsored the expert’s trip and hosted this particular event for valued clients and business partners.

Justin Clarke, chairman of Private Property Holdings, says, “Dolf reminded us that we should not get stuck in the moment. If we look at how property prices grew during the up-cycle, most of us have done pretty well, even with a small decline in the market”.

Clarke adds the he was “fortunate enough to spend a fair amount of time with [de Roos] and was impressed that [he] took the time to understand the SA market. He was able to apply his international experience to developing a real opinion on what’s happening here”.

When asked by someone at the event if de Roos would risk investment in South Africa, his reply was simply, “What do you think I’m doing here?” The expert’s seminars aimed at teaching people how the world is dealing with the property market downturn and what South Africans could do to capitalize on the situation.

According to Clarke, “My lasting impression is of a powerful, immensely wealthy man who was content to fly Kulula and mucked in to unpack boxes when necessary. He showed a better depth of knowledge of the subject matter than any other property guru I have met to date”.

He adds that, “Private Property Holdings is extremely confident in the property market, which is why we were delighted to sponsor the events and share Dolf’s positive outlook with guests and delegates”.

The information in this article is courtesy of Private Property (“Invest in property,” says international expert”, Bizcommunity, 3 June 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

List of Negative Influences Expanding

More Burden on Property Prices

An article published in Business Report draws attention to growing concern over the ever-lengthening list of negative factors burdening property prices in South Africa. Reserve Bank governor, Tito Mboweni has made hawkish statements to the effect that the market should expect a repo rate hike of 100 basis points this month, which takes the prime interest rate to 16% and there is chance of a yet another hike of 50 basis points in August.

According to First National Bank (FNB), this would push monthly repayments on a R250 000 home loan over 20 years to R3 478 at 16%, from R2 496 in June 2006, when prime was just 10.5%. Property strategist for FNB, John Loos acknowledges that times in the residential property market are “tough”. The list of negative influences continues to expand, including high interest rates, rising inflation, a slowing economy, the National Credit Act, post-Polokwane unease, the Eskom crisis, Zimbabwe’s political dramas, xenophobic violence and low income yields.

Loos said that, “The list has become significantly longer than previously anticipated and especially interest rate hiking has gone further than we had forecast. As a result, a 21% decline in the value of new mortgage loans and re-advances is projected in 2008 and a period of national house price deflation is now forecast”.

Lightstone Risk Management’s national house price index reflects an annual property inflation drop to 7.8% in April, which is half a percentage point lower than in March and significantly lower than the rate of 14% in April 2007. Lightstone reported that higher value areas seem to be performing the worst and may have moved closer to zero or even negative nominal growth. Furthermore, house price inflation appears to be declining the fastest in smaller provincial markets.

According to the index, “Although nominal house price inflation is still positive, one major difference from last year is the decline in real house price inflation (adjusting for consumer price inflation). Currently, real house price inflation is around –3%, which is significantly down from last year when real house price inflation was 7%”.

Based on external economic forecasts involving factors such as domestic product growth, consumer inflation, disposable income growth and debt service ratios, Lightstone expected the downward trend in national house price inflation to continue and bottom out towards the middle of 2009. There is still a good chance that the low point for national nominal house price inflation will remain positive, although in some segments house prices are likely to decline even more.

In the analysis for January, Lightstone’s indication of national inflation came in at 9.2%. The high value segment, which includes properties priced between R1.5m and R750 000, continued its steep decline, dropping to 6.4%, while the more affordable sector (less than R250 000) continued to outdo the other segments and reached inflation of 24.3%.

As far as freehold property price inflation was concerned, it continued to outperform sectional titles by 3 percentage points. In January, a drop to 10.8% inflation was reported for freehold against 8% for sectional titles. Provincial growth performance in Gauteng for January reached 8.5%, which is lower than any of the other major provinces. The Eastern Cape performed best, with prices increasing by 9.7%.

The growth in coastal property prices, Lightstone found had shown surprising strength until the end of last year, but took a sharp downturn in January, dipping 2.7 percentage points to 8.5%. Growth fell back below non-coastal inflation, which came in at 9.4%,

The information in this article is courtesy of Wiseman Khuzwayo (“Growing list of negative factors burdens property prices”, Business Report, 1 June 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

Property Investment Bargain for Big Players in SA

Property Investment Bargain for PIC

An article in Business Day reports that the lower property prices and spiraling interest rates have created investment opportunities for big players, such as the Public Investment Corporation (PIC).

At the 40th annual convention of commercial property association SAPOA, held at the Cape Town International Convention Centre, head of PIC property investments, Wayne van der Vent said that this was “almost an ideal market” for the acquisition of property assets. The property will be acquired for the Government Employees Pension Fund, which PIC manages.

In recent months, the commercial property market, especially the listed sector has literally been hammered and the PIC has been a “cash buyer”. Van der Vent said that life has been easier “in that we are moving from a seller’s to a buyer’s market”.

The PIC is said to be implementing an aggressive growth strategy to build up its property portfolio to between 5% and 8% of the value of the pension fund in the next three to five years. Currently worth R20bn, the property portfolio accounts for about 2% of the fund’s total assets of R750bn and the growth planned would take the property portfolio to about R75bn.

Even though the market is deemed favourable, van der Vent indicated that the PIC’s focus on “returns” meant that it was not prepared to “pay any price”. The PIC had to “leverage changes” in South Africa, such as transformation and green building initiatives. Van der Vent noted that the listed property sector has not seen enough transformation and that the government had been “pushing for transformation around property ownership”.

While this was important, transformation has to occur elsewhere in the sector, not just at the board level. “There must be enterprise development. New property managers must be given an opportunity. I don’t think we’ve been creative enough about empowerment. Ownership is one aspect of transformation”.

The information in this article is courtesy of Nick Wilson (“South Africa: PIC Hunts Property Investment Bargains”, Business Day, 30 May 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

SA Property Market in Better Shape than World

Property Prices Falling Worldwide

An article published in the UK’s Independent has drawn attention to the fact that the housing slump is spreading globally, with the adverse effects of the credit crunch on property values taking hold in Europe, the US and the rest of the world.

The current financial turmoil being experienced globally has send the demand for retail and industrial sites almost everywhere into decline, according the Royal Institution of Chartered Surveyors (RICS), which carried out the first global commercial property survey recently. The quantity of transactions has decreased in Eastern Europe and South America, while emerging Asian markets are experiencing stagnation in growth, including China. RICS warned that investors are reassessing their “appetite for risk” and this is having a profound effect on the global property market. Demand from commercial tenants has also decreased, but has not been so badly affected.

The chief economist at RICS, Oliver Gilmartin has said that, “Few markets have escaped the credit malaise which has engulfed commercial property activity since last summer. What started in the developed world has spilt into investment activity across several emerging markets”.

He added that, “In Britain, the outlook for the coming quarter remains subdued, with 23 percent more surveyors expecting rents to fall than rise”. The predictions were released yesterday when Shaftesbury became the latest British property company to report difficulties and blamed a drop in the value of its portfolio.

Shaftesbury owns shops and restaurants in and around London’s Carnaby Street and has reported a net loss of €91.2m for the last six months, its first loss since 1992. The group reported earnings of €212m during the same period just a year ago, with the net value of its assets having fallen by almost 11% this year.

Gilmartin explained that the demand for rental property had fallen worldwide for the first time in 4 years, with a significant drop in capital values in Japan and Australasia. Commercial offices in Japan are expecting the worst rentals, followed closely by retail outlets in North America. RICS has said that while China and other emerging Asian markets acted as a “beacon of resilience” during the last half of last year, “investors are now less sure of the potential higher returns on offer”.

This all translates into the most serious collapse in confidence ever experienced by Western nations. Over half the western European companies contacted by RICS indicated that industrial property prices were down, while the down spiral in the US residential market was likely to have an impact on the shops and malls sector.

Even so, RICS analysts found some parts of the world where commercial property was still flourishing. Values are expected to rise in many parts of Africa and the Middle East.

Taking this information into consideration, the current stagnation in the South African residential property market does not seem quite as bleak as the situation being experienced in the rest of the world. Commercial property is still booming and the steadily increasing interest rates are resulting in a strong rentals market. Perhaps the saying that every cloud has a silver lining rings true here.

The information in this article is courtesy of Sean O’Grady (“Credit crunch sends property prices falling worldwide”, The Independent, 29 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.

Xenophobia Adds to Negative Sentiment in SA

Xenophobia Affects Property

An article published in Business Day has highlighted the increasing negative factors dampening the residential property market, most recently the wave of xenophobic attacks that have spread from Gauteng to other provinces in the country.

FNB property strategist, John Loos believes that there is light at the end of the tunnel and additional factors, such as the drop in new developments and the strengthening rental market will ultimately support the residential market once interest rates begin to come down.

However, Loos adds that the residential property market is “still deteriorating” and will take “longer to recover than previously thought”. He says that while the current atmosphere of rising interest rates is still “public enemy number one” for the residential market, the list of non-interest rate related negative factors is growing.

There are a number of events that have added to the woes of the residential market, including the electricity supply crisis, the rampant xenophobic attacks and the post-Polokwane jitters amongst minority groups.

According to Loos, “High rates of crime have come to the fore and the xenophobic violence just makes it worse. Then there is the slowing economy driven in part by interest rates and in part by the slow global economy”.

Loos is anticipating a drop of more than 20% in the value of new mortgage loans for 2008. Where actual house prices are concerned, the reality seems to be that “we are heading for some house price deflation” (Loos).

In fact, Loos says, “[B]y late this year or early next year, we could have a spell of year on year price deflation of between 5% and 10% nationally”. He believes that the residential market should start seeing signs of improvement next year.

This is based on the bank’s expectation that after a possible two further interest rate hikes of 50 basis points each, interest rates will begin to level out and gradually start reducing next year (Loos).

Loos added that by 2010, South Africa’s economy would begin to “pick up” on the back of a steadily recovering global economy, as well as a drop in interest rates. He also believes that the “slump in development of new stock” will restore balance to the market and a strong rental market will make buying more attractive in future (Loos).

However, property economist Erwin Rode of Rode & Associates, believes otherwise and says that the stagnant resident market will “be with us until at least 2010”.

The information in this article is courtesy of Nick Wilson (“South Africa: Property Reels From Attacks On Foreigners”, Business Day, 28 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.

Residential Investment Growth in SA to Slow Further

Drop in Building Plans Passed

An article in Business Day reports that building plans passed for the private sector have fallen by a seasonally adjusted 1.7% in the first quarter of the year, compared to the same time last year, according to official data.

Residential building plans account for half the total of plans passed and these fell by 8.9% over the same period, which is a trend taking its cue from interest rate hikes and a drop in property prices. Statistics SA said that while residential building plans passed showed a decline, non-residential building plans rose 8.8% and alterations indicated an increase of 6.7%.

“We are still in an environment where building plans are lower than a year ago,” said Citigroup’s South African economist, Jean-Francois Mercier. “It suggests residential investment growth will slow further.”

Since June 2006, interest rates have increased by 4.5 percentage points, a bid by the Reserve Bank to slow inflation, which has been aggravated by rising world fuel and food prices. This has caused household debt costs to escalate to 11% of disposable income, consequently curbing consumer spending and bringing a halt to a seven year rally in house prices.

According the ABSA, the country’s biggest mortgage lender, house prices are falling in real terms this year. Compared with the last quarter of last year, the number of building plans passed rose 15.8% in the first quarter of 2008, with non-residential buildings taking the lead.

The official figures cover the value of building plans passed by large municipalities, which is adjusted at constant prices for 2000. In March, the value of building plans rose 6.9% when compared with the same time last year.

The information in this article is courtesy of Mariam Isa (“South Africa: Building Plans Passed Drop 1.7 Percent”, Business Day, 22 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.