How SA's property prices compare to BRICs

The South African property market has performed favourably over the past decade in comparison to the BRIC nations, having experienced a steady increase in property price growth since 2000, whereas other emerging markets have had more of a bumpy ride. South Africa has also maintained its period of growth for longer than any of the BRIC countries.

This is according to a recent survey conducted by Lightstone property analysts, which also shows that although South Africa's property market has remained fairly robust in comparison to some emerging markets through the global economic crunch, we are currently experiencing a double dip similar to that of China.

However, that the double dip is not all bad news for South Africa. Confidence indicators remain cautiously optimistic on the whole, while interest Rates are lower than they have been in years, and with property prices decreasing, investors can reap some good value properties

South Africa's position as the largest economy in and gateway to Africa, makes it desirable for us to align with the growth potential of the BRIC - or BRICSA - nations. A comparison between South Africa's property market and those of other BRIC nations is one economic indicator of where we stand in relation to our new trading and diplomatic partners.

The BRIC nations include Brazil Russia India and China, while the acronym itself refers to an economic grouping of developing countries that represent the shift in global economic power away from developed nations towards emerging markets.

BRIC countries are also defined by three main factors that are assisting their growth:

1. A high percentage of gross domestic product (GDP) is spent on research and development (R&D) is the first trait. This is something South Africa will have to improve on in order to catch up with innovative BRIC nations.

2. A focus on the development of human capital and capacity-building to provide especially the technical skills needed in rapidly growing economies.

3. The immense size of the BRIC populations means that each economy has a very large market for the consumption of its own goods and services.

BRAZIL

No comparable time series information is available for Brazil's property market. It has therefore been excluded.

RUSSIA

In terms of House Price Change, Russia has experienced a sharp growth in house prices since 2005, peaking in 2006 at 40% year-on-year (YOY) adjusted for inflation. Prices declined sharply from 2007, falling as low as -20% in mid-2009. House prices have again begun to rise but are still in negative territory. Prices decreased by 7.56% during the first quarter of 2010 (13.8% adjusted for inflation). Russia has experienced its worst recession in 15 years, with GDP contracting 7.9% in 2009. The country's economic recovery commenced in the second half of 2009, and by May 2010, GDP growth had increased to 5.8%, though house prices are still lagging.

INDIA

India experienced sharp growth in house prices between 2002 and 2005, when house prices soared to 30% YOY adjusted for inflation. From 2006 a sharp decline was experienced reaching as low 5% in 2007 but still in positive territory. House prices again started to rise to 20% in the first half of 2008.

A double dip occurred in 2009 pushing India's house prices into negative territory by mid-2009 and house price growth decreased by 20% YOY adjusted for inflation. India's National Housing Bank (NHB) publishes a semi-annual residential property price index, which showed significant slowdown in 2008 and some dramatic price declines.

In Delhi, house prices increased by 4.8% during the second half of 2008. In real terms, house prices declined by 1.6%. Mumbai's house prices rose 4.5% during the second half of 2008. In real terms, they fell by 2%. During the previous half year (H1 2008), prices had increased by 12% (6.7% in real terms).

CHINA

According to Wikipedia, the Chinese property bubble is an ongoing real estate bubble that has seen average house prices in the People's Republic of China triple from 2005 to 2009. "High price-to-income and price-to-rent ratios for property and the high number of unoccupied residential and commercial units have been held up as evidence of a bubble. Critics of the bubble theory point to China's relatively conservative mortgage lending standards and trends of increasing urbanisation and rising incomes as proof that property prices can remain supported."

China experienced sharp growth in house prices from 2006 peaking in mid-2008, when house soared to 30% YOY adjusted for inflation. From mid-2008 house prices began to decrease reached a low of almost 0% growth, but still avoided negative territory. While house prices begin to show expansion in 2009, the market seemed to be losing momentum once again in early 2010.

SOUTH AFRICA

Compared to the BRIC countries, South Africa has experienced a steady increase in property price growth since 2000, whereas other emerging markets have had more of a bumpy ride. South Africa has also maintained its period of growth for far longer than any of the BRIC countries analysed.

South Africa's house price inflation growth reached 35% (adjusted for inflation) at its peak in September 2004, at which point house price returns began to fall to a negative 5% in December 2008. House prices for South Africa peaked earlier than the BRIC countries and we achieved the highest real house price inflation, followed closely by Russia - although it must be noted that it has been widely speculated that Chinese house prices are actually higher than their statistics indicate.

After the start of the financial crisis in September 2008, when financial services firm Lehmann Brothers filed for bankruptcy in the United States, three of the BRIC countries and South Africa showed negative house price growth, with China being the exception. Recovery has been more sluggish for some emerging markets, while South Africa and China have been leading lead in this regard. However, both China and South Africa seem to be experiencing a double dip in house prices, and, after recovering in early 2010, are now experiencing deceleration.

*Hayley Ivins is a Lightstone property analyst

Article by: Hayley Ivins - www.realestateweb.co.za