More interest rate hikes?

Further interest rates hikes are expected but property investors shouldn’t worry.

Property experts agree the current softening of the market is a hiccup and residential property values still have a long way go.

Speaking at a YDL property market update, John Loos, FNB property strategist said the bank forecasts a further increase of 50 basis points in October, followed by a final hike early next year.

“But it is not just about interest rates,” he adds.

Loos says accelerating economic growth will lead to the confidence of a housing recovery in 2008. He believes economic growth rate of 4-5% a year is sustainable and predicts house price growth of 8,4% in 2007 and 10,3% in 2008.

Ronald Ennik, Pam Golding COO estimates that further rate hikes can be anything up 1,5 percentage points this year.

He says this will have a mild influence on the property market but reckons sentiment and market confidence play a bigger role.

“Sentiment can withstand interest rate fluctuations and if sentiment is positive, people will carry on buying,” he notes.

Ennik reckons the emerging black middle class is vital in driving property prices and his advice is to follow the black investor.

Midrand is one of the most buoyant regions in the country and more than half of the buyers are black, he notes. Buccleuch is another example where property prices have rocketed.

Ennik explains that as salaries increase, more people living in townships want to buy property.

“The new black middle class don’t follow the location, location, location adage but prefer convenience and being close to communities, highways and access routes.”

He can’t predict where the next hot area will be but advises investors to analyse the reasons why these areas became popular in the first place.

Loos reckons investors should look at places driven by the economy where young professionals will be looking for rental properties.

“Investors should be careful about investing in Johannesburg’s northern suburbs and Sandton - these areas are overtraded and development growth is slowing,” advises Ennik.

People are moving closer to work and schools and Sandton is becoming the country’s biggest parking lot, adds Loos.

He says that Gauteng is the country’s engine of growth and will continue to be the best performing province.

Coastal towns such as Cape Town, Durban, and Port Elizabeth (PE) have a land scarcity problem but Loos notes that transport links with Gauteng will support property growth in Durban and PE.

“Cape Town is geographically isolated,” he adds.

But, he continues, when it comes to inner city rejuvenation, Cape Town leads the rest. He maintains the V&A Waterfront “saved” the city.

Durban is set to be the next CBD to take off, reckons Loos.

The development at Durban’s Point Waterfront, is sparking the area’s revival, he adds.

“The Joburg CBD lacks a playground for the rich and famous to play – it needs a precinct to drive growth in the area,” says Loos.

Article by: Gaylyn Wingate-Pearse - www.moneyweb.co.za