SA still cheap, for now

South African buyers are railing against the price of local property, which according to Jacques du Toit, senior property analyst for ABSA Home Loans, has grown a phenomenal 284 percent since the beginning of 2000. However, home ownership is still relatively cheap when compared with London, New York and even Moscow.

These cities are, according to the Global Property Guide of 15 January 2008, home to the world’s most expensive apartments. Central London buyers are paying £10 960 to £18 214 per square metre (R168 195 to R279 527) for apartment space, while buyers of prime real estate in New York are being charged anywhere from US$13 270 to US$22 923 (R102 212 to R176 546).

According to Mike Bester, CEO of Realty 1 International Property Group, these figures translate to R208 000 per sq metre in London and R130 000 in New York on average. This is substantially more than the price per square metre of a two bedroom flat in Cape Town, which the GPG puts at around US$2784 (R20 000).

And while price growth for the average house has slowed dramatically since peaking at about 38 percent in 2004 (In 2000, the average house price in South Africa was R250 800. By the end of 2007, it had reached R963 700, according to Absa), Bester believes it will continue to grow in 2008, albeit at a much slower rate and that even expensive houses may show low growth.

This growth should coincide with steady and ongoing global demand for South African gold and platinum among other exports, all major props to South Africa’s economy, he says. In so doing, South African property should provide a counterfoil to any downward movement of international share prices, which is widely expected by international financiers on the back of the USA’s current financial crisis.

It's the wrong time to try and play catch-up with the elite destinations.

Yet, he adds, while South African property prices are relatively low by world standards, this should not incentivize local sellers or estate agents to hop on to the bandwagon. “In a world affected by the USA’s near recessionary status, one of our greatest economic strengths and a major stabilising factor is our real estate,” he says. “Buyers the world over are pulling in the stops so it’s the wrong time to try and play catch-up with the elite destinations.”

Sellers will therefore play a key role in terms of the country’s real estate sector being successfully able to weather the tightening global economy, Bester says. “Sellers need to accept that the global situation, along with the current state of our political and crime environments, is putting pressure on the South African economy. Buyers know this. It’s evident throughout the country.”

Far from a doom and gloom situation, though, Bester says people generally have faith in property ownership. “There is a growing culture of home ownership in our country where people want to own their own properties. They see real estate as a good and stable long-term means of wealth creation as well as a place to live and raise their families, which is all good news for sellers.”

“But they refuse to over-commit financially,” he adds pointedly. “It’s the end of the road for over-priced sellers who are as responsible for the slowdown in market activity as are the rising interest rate and the National Credit Act.”

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