Global real estate trends are relevant to SA

Reading through the 2010 Emerging Trends in Real Estate report, it is interesting to note just how globalised the modern property market has become.

“In the past, local trends and influences were the major determining factors in the property market of a specific region, but as the world - and its property markets - become increasingly globalised, the issues and investment advice pertinent to the global market become more relevant to localised markets such as ours,” says Peter Gilmour, Chairman of RE/MAX of Southern Africa, 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.

He adds that many global property trends noted in the 31st edition of the annual report, published jointly by the Urban Land Institute and PricewaterhouseCoopers, hold true in the South African property market too. “In fact, some of the statements in the report could well have been written specifically for the South African market, even though the report focuses on the US, Canadian, and Latin American real estate markets,” says Gilmour.

The findings Gilmour refers to, include, among others:

that debt markets will remain severely compromised as resuscitated banks increase lending slowly, employing strict underwriting standards and requiring significant equity stakes from borrowers.
that first-to-hit-bottom housing markets are stabilising further, despite more foreclosures, and that modest improvement in some areas is seen while restrained mortgage lenders and cash-strapped purchasers limit the scope of any rebound; and
that developers go on enforced holidays and that development doesn’t pencil out when investors can buy existing real estate in the bargain basement.

“While there have been signs of improvement in property sales activity levels, demand remains constrained by high household debt levels and tight lending criteria,” says Gilmour, noting that less than 50% of bond applications in SA are approved while banks widely apply loan-to-value ratios of 80% or more, which means that homebuyers often need to have a deposit of at least 20% to qualify for a bond. “Furthermore, the constrained demand cannot absorb the current supply of available as well as distressed properties coming into the market, which in turn, coupled with the difficulty of obtaining development finance, can partly be blamed for the slump in new property developments,” he says.

With all the similarities in local and international property trends, Gilmour further believes that certain aspects pertaining to the ‘Investment Best Bets for 2010’ as proposed by the report may well serve as a useful guideline for South Africans who are considering a property purchase in the current market.

“For example, properties located close to workplaces or transport nodes, or within walking distances of our much-improved public transport network, will indeed become increasingly sought-after as the congestion on our roads increase, where as environmentally-friendly features in homes will become the deciding factor for many buyers as electricity costs in South Africa increase at a minimum rate of 25% per year,” he says.

And although he agrees with the fact that property buyers should be patient and selective and focus on quality, Gilmour cautions buyers not to assume that a property is a bargain simply because it’s is a buyers’ market. “Locally, even distressed properties are listed at current market value,” says Gilmour, reminding consumers that any property purchases should always be treated as a long-term investment.

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