Despite the fact that local and global sentiment are at an all-time low, various property fundis say now really is the time to buy into the property market.
Global economic concerns, riots, war, famine and local socio-political unrest have all contributed to the pall currently hanging over the property markets of South Africa and the rest of the world for that matter. That said there is still a lot going for this country.
South Africa’s banking and financial systems are sound, our national debt is low, we still enjoy a comparatively high standard of living and the country is blessed by an abundance of resources, natural and otherwise. Yes we have issues but which country doesn’t? Another factor which could further undermine buyer sentiment is a recent report by property economists Rode & Associates which states that property in South Africa remains “overpriced” and will probably decline in value over the next few years.
“Our view is that while this may be true in the short to medium term, property values will ‘revert to trend’ as the economists say and there will be an inevitable recovery,” remarks Bryan Biehler, MD of the Huizemark property group.
The question is where should you be when an upswing occurs? Sitting on the fringes in a rental property or being an owner and therefore in a position to laugh off rental increases and enjoy an appreciating asset? Admittedly, property is no longer a ‘get rich quick’ proposition but that’s not an altogether bad thing. The heydays of the pre-recession property market are long since gone and purchasing property now must be seen as a long term investment as history shows that time and again property has proved itself a profitable investment.
Would-be property buyers concerned with the negatives need to shift their focus to all the positives working in South Africa’s favour and make a decision now or resign themselves to the fact that they are probably going to have to rent for some time to come as the banks are beginning to tighten their lending criteria once more and bank rate concessions are drying up. A few months ago, banks were willing to grant clients as much as 1,5% off the prime rate of interest. Not so anymore.
Moreover, although there is talk of an upcoming interest rate cut occurring towards the end of 2011, many analysts believe the Central Bank would be loath to cut rates in an environment where wage demands have been so far above inflation and the rand could potentially depreciate still further.
The Reserve Bank’s official repo rate has been at a 30 year low of 5.5% since November 2010, after retreating from a peak of 12% in December 2008. Property experts are generally of the opinion that such low levels cannot be sustained forever and that interest rates will inevitably increase once again. Indeed, Biehler believes that interest rates could peak at around 12% or even 13% in 2011. Accordingly, fence-sitters really shouldn’t delay as they can probably still secure a home loan at a reasonable rate right now. Failing to do so could cost hesitant buyers dearly in the long run as higher interest rates add considerably to the cost of a home loan over the years thanks to compound interest.
The property market is cyclical and property prices will increase again which is why buyers should take advantage of current conditions as they will undoubtedly benefit in the long run.