A changed market
| After a two year flat-out gallop, the pace of South Africa's
property market has slowed to an enduring canter, the reins now firmly
in the hands of buyers.
Speaking in Cape Town recently, National Referral Network (NRN) chairman Terry Brookes said that the new year had dawned on a changed market. While activity had been surprisingly good during January, there had been a definite shift away from a seller's market to a buyer's market. Seeing this as a positive move, Brookes said this changed state of affairs would ensure the market's long-term sustainability by effectively putting the brakes on runaway pricing, since the issue of affordability was biting into most home buyers.
"The market went ballistic a couple of years ago when the rand weakened, stimulating an unprecedented and frenzied wave of buying from both foreigners and locals. In some areas, especially Cape Town's upmarket suburbs, prices tripled and even quadrupled during this time," he said. "At the beginning of 2005, however, the market started slowing down, although many sellers still refuse to believe that their pricing expectations have become unrealistic as a result."
Noting that buyers were now shopping around far more selectively, Brookes said there was a lot of interest from existing home owners who wanted to upgrade. These people were shopping around selectively, viewing every possible property before buying the best priced one. "And if they can't find the right property at the right price, they are staying where they are and upgrading their existing homes, which has led to massive upgrading in many of the Cape's southern suburbs."
Market activity in other parts of the country had also been better than expected. According to Charles Alterskye, principal of Acutts Amanzimtoti Coastal and one of the founding members of the NRN, South Africa remained a popular destination for foreign buyers, and he believed that the property market in general would continue to provide a far better real return than money in the bank. "Price growth is leveling out now and in many areas there has been a correction, which bodes well for a more sustainable market in the long run," he said.
Alterskye said the market today was characterised by a number of positives. These included a stable interest rate, lower-than-expected inflation levels and a growing awareness by the country's emerging market of the value of property as a definite means of wealth creation. He added that the stability of the interest rates, at a 24 year low after peaking at around 24 percent in 1998, had enhanced the allure of home ownership as well as buy-to-let investments. "Property ownership is seen by a growing number of people to be a sound move, which is highlighted by the fact that very few property investors are redirecting their interests to the stock market."
One thing was certain, though, he continued, and that was that sellers needed to be aware that the market had changed. "They must realise that the market is supply and demand driven. Price growth has cooled off so it makes no sense for them to keep pricing properties based on what's for sale. Now more than ever, they need to bring their pricing in line with prevailing conditions, since approximately 40 percent of the stock currently on the market in our area is excessively over-priced."
A new trend, and one that had mostly been rejected out of hand by sellers last year, was an increase in the number of people buying subject to the sale of existing properties, said Alterskye. "Sellers are now starting to accept subject-to offers because homes are taking longer to sell and sellers have a lot of competition, unlike last year when they controlled the market owing to severe stock shortages. The market has switched in favour of buyers who will often only buy if they can sell first. If they have to pay inflated prices, they will then try and sell for inflated prices and so the cycle will continue."
Alterskye also observed that the tenant profile in his area of operation had changed over the last couple of years". "A lot more middle and upper level personnel are renting homes, compared with five years ago when tenants tended to be mostly families whose earning capabilities precluded them from ever being able to enjoy the fruits of home ownership." This he attributed to soaring property prices and the frightening reality of the widening gap between property affordability and remuneration.
Written by Ingrid Smit