Best property buyes

For some time, the property market in South Africa, and indeed, across the globe, has been aptly refered to as an exceptional buyers’ market. “This is the result of a peculiar confluence of numerous factors that have resulted in a market offering great opportunities for buyers. We are not likely to encounter such a situation again,” says Peter Gilmour, Chairman of RE/MAX of Southern Africa.

The sequence of events that have created the current property market conditions commenced with the spectacular growth in property values in the early 2000’s, with the average annual house price inflation hitting a peak of 29.5% in 2004, according to First National Bank’s Property Barometer. At this time, interest rates tumbled, reaching a low of 10.5% in April 2005. With the implementation of the National Credit Act looming, banks were eager to provide credit, including 100% and 110% bonds. New developments sprung up everywhere and buy-to-let reached a peak, totalling 25% of property sales.

Then, things changed drastically. Within a matter of three years, the National Credit Act had clamped down on lending, interest rates had risen to 15.5%, property price inflation threatened to move into negative territory and the world found itself in the grip of a economic global recession, described by many as more devastating than the Great Depression of the 1930s.

Against this background, homeowners who so easily obtained credit a few months previously, found themselves unable to meet the bond repayments which had escalated massively due to the interest rate increases, while their budgets were strained by the recessionary conditions. Property demand dried up as fast as the bank’s tightened their lending criteria and the provisions of the NCA, including the new affordability criteria, made it exceptionally difficult for willing buyers to obtain a bond. Developers with lead times of two to three years sat with unsold stock, and had to compete with an increasing number of distressed properties flooding the market when propery price deflation seemed to be a real possibility.

“And this confluence of local and global factors gave rise to the buyers’ market we have today,” says Gilmour. He adds that it is highly unlikely that we will encounter such an unusual sequence of events compressed into such a short space of time again, making now a particularly good time for buyers to find excellent deals in the property market.

Given the wide choice of properties available, where should investors and homebuyers focus their attention?

“Given the globalised nature of the property industry as well as the striking similarities between our local and other global property markets, buyers need to consider and investigate global property trends,” suggests Gilmour, who held the position of Senior Vice President of Franchise Sales at the Denver Headquarters of RE/MAX International for the past seven years before returning to SA in 2009.

Gilmour highlights a number of property investment ‘Best Bets for 2010,’ noted in PricewaterhouseCoopers’ latest Emerging Trends in Real Estate report, which he describes as “uncannily accurate in the current South African market.”

“Just as in South Africa, the report’s prediction for the global market is that the current lack of development activity sets the stage for a strong rebound in any economic turnaround, creating a shortage of units by as early as 2012 – just 16 months away. For this reason, a close look is suggested at units in distressed property developments, the still steady stream of distressed private sales and the growing number of repossessed properties that the banks are placing on the market,” says Gilmour.

He advises consumers to also consider investing in the following ‘Best Bets’ noted in the report:

Hospitality properties, as this sector has potential to recover sooner
Vacant land, provided that investors can draw a distinction between prime and fringe locations and are willing to hold the investment for five to ten years
Commercial and industrial properties, especially warehouses and prime office space in 24-hour nodes with long-term leases that can bridge the downturn

In addition he advises purchasers to look at distressed properties as he says these are the ones that possibly have the best potential for strong price growth in the medium to long term.

“As the property markets of the world becomes ever-more globalised, the importance of an estate agency with a global footprint cannot be underestimated - it will ensure that as a home buyer or seller, you can tap into the latest global property expertise to help you make the right decisions in this new globalised and rapidly changing playing field that is the current property market in South Africa,” Gilmour concludes.

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