Real Estate News - What is in store for 2006?

PROPERTY commentators have mixed views on what is in store for SA’s residential property market next year.
While Barak Geffen of Sotheby’s International Realtyand Aida’s Alex Fenwick say there will be good opportunities in the inner cities and in the lower end of the market, property economist Erwin Rode is more cautious about the residential market’s prospects.

Rode of property economists and valuers Rode & Associates, says that in general he does not think people should be investing in residential property with a view to operating in the buy-to-let market next year. “As an asset class it (residential property) is extremely expensive,” says Rode.

He does not expect residential property price growth to rise more than 5% next year. “On a month-to-month basis, annualised price growth is already down to 7%.”

But he hastens to say that this does not mean people should not “cherry pick” areas that are virtually guaranteed to show strong demand due to limited supply.

“What springs to mind is the Atlantic Seaboard. Very little supply can be added to this area. While the economy does well, the super rich would want to stay in areas like that. Even though prices are coming up for some air, the medium- and long-term prospects for an area like this are good,” says Rode.

Geffen, executive director of Sotheby’s International Realty, says residential property in inner cities may be one of the best options for savvy investors next year and all over the world inner cities are “transforming into sought-after residential areas where sky space comes at a premium”.

He says a property in the central business district of Johannesburg and Cape Town could be a good investment. “If you look at any major cities throughout the world, CBD space comes at a premium, attracts big money and experiences sustained growth. SA will go the same way.”

He advises buying inner-city space next year, but warns investors that it is “definitely a longer-term hold”.

Rode, however, says that — with the possible exception of Cape Town’s CBD — it is wrong to compare South African city centres with those in Europe or North America. He says properties in Cape Town’s CBD are still fully priced for the time being and the shrewd investor should wait for prices to come down to more realistic levels.

“As far as the other CBDs are concerned, I am afraid the risks are extremely high and you need a lot of courage to go in there for the simple reason that it’s not clear how things will develop in those CBDs in the long run.”

While there is a lot of “transaction activity” in these areas, the problem is that, in order for a residential conversion to be viable, investors have to pay “just about nothing” for the existing property. “Even then, because the last word hasn’t been spoken on the future of CBDs, the risk is still high,” says Rode.

Fenwick, CEO of the Aida real estate group, says the South African residential property market can look forward to good health next year.

“Although the market is currently less active than in 2004, there is definitely room at the bottom end for a mini boom and investors should take note.”

Fenwick says there is a lot of demand in this segment of the market and strong growth can be expected as long as new stock is brought to the market.

Article by: Business Day