South Africa narrowly avoided a recession in the first half of 2014 – a fact that is doing little to assuage investors’ concerns over the country’s economic prospects. The slowdown prompted Standard & Poor’s to downgrade South Africa’s credit rating and warn of further cuts.
Yet, according to industry experts, the residential property market shows little sign of distress. Andrew Golding, Chief Executive at Pam Golding, says that SA’s residential property market continues to buck the general, muted trend in the current, subdued economy, with increasing activity across all regions and particularly in metropolitan areas.
“Both resilient and robust, the recovery and on-going sustainability of the market is being driven by a combination of factors which include accumulated pent-up demand across all sectors and price ranges, gradual easing of stringent mortgage lending criteria and importantly, increased consumer confidence.
“The current market is characterised by a significant shortage of stock in areas and regions around the country, buyer competition for properties and gradually increasing house price appreciation, all factors pointing to a traditional up-cycle. Having gathered significant momentum some 18 months ago, and notwithstanding the seemingly rising interest rate cycle, we believe, all things being equal, the current market conditions will prevail for the foreseeable future.”
Demand for residential property
Park Village Auctions’ Jaco du Toit concurs with Golding. “As we head into summer, we are seeing more demand for residential property, particularly in developed suburban nodes and in gated security complexes. Buyers are increasingly shying away from far flung, isolated areas due to the cost of travel and safety concerns.”
If only the commercial market was performing as well. This sector remains under pressure in the wake of rising costs which property owners are trying to contain through making buildings more energy efficient. But it’s an uphill battle notes Du Toit.
And while the retail property sector is performing fairly well, consumer spending, which accounts for 60% of the GDP is slowing. Retail sales were reportedly at a four-and-a-half year low in June, which indicates that there is little momentum to spur additional growth in this sector – which may result in an uptick in vacancies in the near future.
On the industrial front, there are now reportedly shortages of industrial land in some nodes, particularly at secure, access controlled parks. “Lean and mean” industrial type properties in particular are becoming increasingly hard to come by notes Du Toit.
“It will be interesting to see how the property market fares going forward,” adds Du Toit. “The full effect of African Bank’s collapse, coupled with further interest rate hikes are factors to watch. There’s also no getting away from the fact that the ability of the economy to generate growth is currently severely constrained, even in the absence of strike activity.”
Simon Bray, Chief Operations Officer at Private Property, believes that 2015 will yield much of the same. “One thing appears to be true of the post-boom property market in South Africa and that is consistency. Nothing particularly volatile has happened in the market since the credit regulations of 2008. We see slow but steady recovery in transaction volumes and this trend should continue into the first half of next year. One thing that is encouraging is the significant growth in the new development sector. This increase in supply should stimulate fresh growth in 2015.”
The last word
In terms of opportunities, Bray believes there will be significant room for improvement in the property transaction process in 2015. “The average property still sits on the market for six to eight months before being sold. A number of opportunities exist to speed this up including, educating sellers on price, estate agent turnaround times with buyers, effective marketing and presentation of properties for sale. We have some innovations in this space that we hope will speed up the process and with it, bring real improvement to the overall market in 2015.”