Have confidence in SA property market

The decision by the Reserve Bank to maintain the repo rate at 5.5 percent is one of the many reasons to have confidence in the property market.
“South Africa currently has much better fundamentals driving the property market than most other countries, including a still-growing black middle class and an increasing number of people with good jobs and an appetite for home ownership,” says Botha.
Rudi Botha, chief executive officer of Betterbond says homebuyers and investors can look forward to real price growth within the next 18 to 24 months.
“South Africa currently has much better fundamentals driving the property market than most other countries, including a still-growing black middle class and an increasing number of people with good jobs and an appetite for home ownership.”
Botha explains that these aspirations have been fuelled this year by above-inflation wage increases to many government employees and union members.
This has been evident in Betterbond’s statistics that revealed that the number of home purchases by black buyers, as a percentage of the total number of purchases has increased from 42 percent to 52 percent in the past 12 months.
He says the increased affordability of residential property is another major positive factor for the South African market.
Interest rates holding at a 30-year low have a large part to play because monthly mortgage commitments are reduced.
The minimum installment on an average home is currently 33.5 percent lower than in 2008 just before the global financial crisis.
Botha says home prices are currently much lower in relation to average incomes than they were three years ago and this is starting to fuel demand especially at the lower end of the market.
“Low interest rates make it easier for buyers to qualify for mortgage loans as does the fact that many households have worked hard to reduce their debt burden over the past few years and that the average debt to income ratio has now dropped below 76 percent from a high of 83 percent.”
Botha says home prices are currently much lower in relation to average incomes than they were three years ago and this is starting to fuel demand especially at the lower end of the market.
“In fact, we believe that, were it not for the current lending criteria and the requirement for substantial deposits, there would be many more home sales taking place than is now the case.
Betterbond data shows that the number of offers to purchase being negotiated by estate agents has climbed right back up since 2009 and is currently only 33 percent down on the number they were handling at the height of the property boom.
The monthly value of deals actually being registered in the Deeds Office is still only about one-third of the value that was being achieved during the boom – largely due to buyers’ inability to secure finance to go through with their purchases, he says.
Botha says demand for rental market is strong and this should bring greater numbers of investors back into the market.
“Rental yields are starting to increase in many areas and this should spur buy-to-let investors who account for about 8 percent of home purchases.”
Botha says South African consumers should be pleased by the Reserve Bank’s decision to keep the repo rate unchanged at 5.5 percent when compared to some BRICS countries which have raised rates in an effort to contain inflation.
He says South Africa is set for reasonable growth of 3.1 percent this year, with the manufacturing and retail sales figures encouraging – making it a positive factor for the property market.
In view of the continued global and domestic economic pressures and the upward inflationary trend driven by fuel and utility hikes, he believes that taking a conservative approach in the short term would benefit the economy in the medium to longer term.
This approach also contributes to stability in the property market, he says.
While a lowering of the interest rate would certainly improve affordability for bond holders, it may signal that it is time to start spending.
“Consumers need to focus on bringing down their household debt levels as this will in turn stimulate the market.”
“Consumers in South Africa are far more optimistic about the future of local real estate and the country is set to see a full recovery in the market far quicker than other markets.”
He says South Africa’s inclusion into BRICS will have a positive impact on the local market as this will attract investment and fuel both the economy and real estate market alike.
There is also a growing sector of home buyers intent on achieving more balance and quality in their daily lives through a lifestyle change – which generally includes relocation to a different area or region.
An ongoing trend is that home buyers are prepared to pay a premium to buy into affordable lifestyle estates and gated communities, where available stock tends to be limited at present.
Developers are showing an increased appetite to re-enter the marketplace. Value for money remains a key driver for prospective homebuyers.
In line with this, sellers have had to acknowledge the existing economic trading conditions and price their homes realistically and according to current market-related property values.
From a buyer perspective the prevailing market conditions continue to present sound buying opportunities for those with access to finance, cash, or a sizeable deposit, he adds.
Arguably a decrease in the repo rate would give consumers and lenders a little more breathing room but is not a viable solution at present due to high levels of consumer debt, he says.
It would seem that maintaining the status quo is the way forward for the moment. That might not be what consumers or house sellers were hoping for, but might just encourage buyers to venture out.