The worst wasn't bad. Why is South Africa in better shape than other housing markets?

We are constantly reminded that we are part of one big, interconnected world and that whatever decisions are made in economic powerhouses like the US and China will affect us on our doorstep. Yet, the world's financial crisis which saw property markets crash, and continue to topple, around the world and our own recession have barely registered a blip on South Africa's house prices.

After just over a year of low property sales' volumes, staff cuts at estate agencies and mortgage originators and general financial pain in the real estate industry, most property owners emerged from 2009 with their bricks-and-mortar worth only a little less than in 2008.

Absa's house price figures, released this week, show the average price of larger houses remained steady over the year (0.3%). Small houses - anything of 220m² or less - fell by nearly 3% on average.

Those are not pleasing numbers if you are an owner hoping to sell after holding a property for a short time. But, in the global context, the declines are modest. In the long-run 2008's set-back probably won't make a difference to a property investor's return. The Absa expectation is for average house price growth in South Africa this year of 6-7%.

Looking back, South Africa's property market never crashed. It seems the bank economists who, in explaining the surge in house prices last decade, spoke of a structural readjustment after years in which property was undervalued thanks to political issues were right all along. There never was a South African house price bubble.

You only have to reflect on a country like Dubai where property prices fell by 30% and more to get an idea of the financial agony a real house price bubble can inflict when it pops.

Jacques du Toit, senior property analyst at Absa Home Loans, says of South Africa's market: "There was no bubble that burst. The market peaked in 2004 in terms of house price growth. Then, all the bad international news hit us in late 2008/2009 when the property market was already on a downward trend."

The tough conditions of recent years have been, in Du Toit's view, part of a "normal cycle" that "went deeper" than usual. There was "no major collapse" in the housing market.

Saving us from the global misfortunes to a large extent was the National Credit Act, reckons Du Toit. People found it relatively more difficult to obtain credit after June 2007 when this tough credit legislation and accompanying regulations kicked in.

There are other reasons for the relatively modest house price decline, like the fact there was no panic in South Africa's financial markets in late 2008. Some say foreign exchange controls also helped shelter South Africans from the global financial storm.

The good property news delivered to us this week by Absa highlights that South African real estate, in general, remains an attractive asset class for investment. Taking into account inflation, South African residential property was not a good store of value last year. Nevertheless, property owners were shielded from hard financial knocks.

No-one's quite sure where interest rates are heading. Some economy watchers say up, others say down. Absa is expecting a half-a-percent interest rate hike late this year. The prime rate for bank customers is 10.5%. When rates go up, property prices usually come under pressure as buyers find they get less credit from banks to fund their purchases.

Generally the impression from the bank's property experts is that the market has turned for the better. Don't expect fireworks in 2010, Du Toit tells Realestateweb, but do expect property values to tick up from here. For well-heeled international investors, a South African residential property would provide good diversification in a global portfolio of assets.

Article by: Jackie Cameron - www.realestateweb.co.za