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 Demand
for residential property in South Africa is expected to pick up towards
mid-year, as buyers respond to a peak in interest rates, an improving
rental market and slowing house development, a property expert said.
"Although in these relatively gloomy times it is sometimes difficult
to see light at the end of the tunnel, it is always important to remember
that property runs in cycles, and at some point the cycle turns,"
said John Loos, a property strategist at First National Bank.
His comments comes amid slowing house prices and a burgeoning rental
property market as buyers shy away from buying new homes due to the
high interest rate environment.
So the cycle’s turn is dependent on interest rates staying flat,
which Loos believes is the case, despite the key inflation measure staying
above the central bank’s 3%-6% target band.
"Although CPIX inflation still runs well above the target limit
of 6%, it’s more the significant weakening in some key domestic
demand indicators which leads to our belief that the SA Reserve Bank
may well believe that it has done enough to cool home-grown inflationary
pressures," said Loos.
Mushrooming demand for rental property market is also expected to improve
attractiveness of residential property as an investment, Loos said.
The latest FNB Residential Property Barometer - Rental Markets showed
that activity levels in the rental market were high, with three-quarters
of rental property getting snapped up within a month of coming on to
the market.
An expected slowdown in building of new homes, which started last year
due weak demand and will be driven lower by Eskom’s capacity constraints
this year, would improve property returns, according to Loos.
"This is not great from a developer point of view, but for property
returns to improve it is important that we have a slowdown in growth
of stock, and 2008 looks set to be a dismal year from a development
point of view," Loos said.
He expected demand to pick up by the end of June this year, while house
price inflation would probably only respond with a little more of a
time lag towards the end of next year.
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