I've examined a number of viewpoints in relation to the possible SA
- Historically the Chinese Property bubble of 1993 had a few lessons
for us. Viz. don't overestimate the emerging middle class and be wary
of government intervention that could suddenly cause a collapse -
as the introduction of capital gains tax aggravated the collapse in
China in 1993.
- Dr Adrian Saville examined the factors necessary for a bubble situation
in his article. Linking GDP to growth in the housing market, he identified
5 'deadly sins' that can contribute to a bubble situation, viz. ample
liquidity, increasing use of leverage, increased turnover, democratisation
of the market and new supply.
- Meg Wilson's article covered why she thought the SA market wasn't
in bubble territory. Some of the factors ascribed to the sustained
property boom are:
- Black economic empowerment that brought thousands of previously
"unhoused" people into the formal property market;
- Lower household debt ratios as a result of more conservative
borrowing in reaction to the high interest rates of the late '90s;
- Lower interest rates, with prime declining to 11 percent from
its 1998 peak of 25,5 percent;
- Inflation-beating wage and salary increases that resulted in
household disposable incomes growing faster than the economy until
late last year;
- Greater confidence in the political and social future of the
country, as well as the economy.
Manuel's contribution to the current economic and property boom.
This week I'd like to touch on three of the major factors that have
been driving the SA boom and possibly mitigates the bubble theory -
at least in some instances. Some of these are covered in the abovementioned
articles and those that have been discussed at length I will avoid now
and concentrate on three of the remaining factors.
The emerging middle class.
As Meg Wilson mentioned in her article, the new era of democracy has
allowed thousands and possibly millions of people into the formal housing
market. It is the emergence of this 'new' middle class (and upper class
too) that has helped tip the balance of supply and demand to that of
demand over the last 3 to 4 years. A well known estate agency previously
numbered only around 3% of their buyers as coming from the previously
disadvantaged sector three years ago, whereas this number has escalated
to over 30% in 2004.
Township property boom
The second is the beginning of a housing boom in the affordable housing
market and previously designated townships. The townships tell their
own tales of the property boom. An agent working in Soweto mentioned
that she would receive in excess of 200 enquiries on any property under
R250 000 that they listed. Diepkloof in Soweto has seen an unprecedented
boom. Although at the lower end of the market this sustained boom has
a ripple effect all the way up the pricing ladder.
The third factor is the number returning expats. A few years ago it
was almost unheard of for people and families that had left South Africa
to return. The aftershocks of 911 and global recession has fuelled a
feeling of optimism in the future of South Africa as a safe (relatively
speaking), economically growing and viable environment to reside in.
Many of those that had left feel the pull of their homeland and some
have started returning. High profile celebrities that have returned
have helped make this an acceptable option. Francious Pienaar and Michelle
Garforth are listed in their numbers. Some stats say that as many as
1.7 million South Africans are in Britain alone and a sizeable portion
have expressed an interest in returning to South Africa, either on a
holiday basis or permanently resettling in SA and those returning are
looking to invest in the SA property market. These numbers start affecting
the middle to luxury classes of homes. Here's an interesting article
Putting these factors together we can see three of the socio-economic
factors contributing to the current property boom from the lowest price
homes through the average middle class homes and into the luxury market.
How sustainable or to what extent they will continue to affect the property
market is open to debate and it is your answers to these questions that
will lead you to your own conclusion as to whether the housing market
is in a boom or bubble phase.