|
You must either have balls of steel or the gift of foresight similar
to Nostradamus to call an end to the South African property boom. But
while the rapid recovery in property values in the past five years has
the doomsayers calling the peak, they are perhaps less informed than
the experts who will continue to make a killing in the property market.
They are the ones that tend to ignore the noise and buy regardless —
it's really just a question of where you invest.
Other property markets overheated
There are other parts of the world where property is substantially
more overheated than in South Africa. There is definite evidence of
a peak in the London property market, which has run 200 percent in the
past ten years, and parts of urban Australia are also taking strain
now that prices, especially in places like Sydney have seen gravity-defying
gains. In London, there is an alarming number of 'For Sale' signs littering
upmarket areas where investors are seeking to extricate themselves from
a market they believe has peaked.
The most recent edition of US business magazine 'Fortune' reflects
some of the global property craziness. It reports that property pessimists
in the UK can hedge against the potential of a future property meltdown
via the derivatives markets. Warrants are on offer that will pay off
if British property prices fall. Yale economist Robert Schiller is looking
to introduce similar products into the US market. They have not taken
off as their providers may have expected in the UK, but increasingly
investors are getting nervous about the global rerating in real estate
prices.
Prices in the US are rising at a startling average of 15 percent per
year — the market is slowing in the UK and showing signs of reversing
some of its recent stratospheric gains. In South Africa, investors are
still able to get substantially better value in Bishopscourt or Sandhurst
than they could in Westminster or Manhattan. But the valuation gap is
closing fast.
Property prices will not always rise
We operate on the assumption that property prices will always rise.
That is not so according to Schiller, who has done research on 115 years
of property ownership in the US. He found real house prices can decline
for years on end, as they did from 1900. Real house prices in 1980 were
no higher than they were in 1900. The rally in house prices since 1990
has no historical precedent — so the reality is that we have no
benchmark against which to measure our current experience.
Who are the real suckers?
The issue in South Africa is: Who are the real suckers? Those who wait
for a correction and miss out on predicted upside of more than 20 percent
this year, or those who jump into the higher end of the property market
in the hope of making a fast buck?
Realistically, you have missed the massive rerating at the upper end
of the market. Where you may see some gains however, is in the middle
market where houses valued between about R450 000 to R750 000 are currently
seeing the fastest price gains.
Market activity has decreased
The latest FNB Residential Property Barometer showed market activity
has decreased, but the rate of growth in the middle-lower end of the
market is not decreasing at the same rate as the upper-end.
"This could indicate that the next step of the property cycle
is beginning to take place, presenting new opportunities," says
FNB head of Home Loans Ed Grondel.
Can the growth be sustained?
There is plenty of activity too amongst first-time homebuyers who made
up 32 percent of the market in the first quarter of this year —
the question now really must be whether the frenzied appetite for the
entry level market will be sustained to ensure today's buyers can move
up the ladder tomorrow. That will be the crucial test for the sustainability
of the growth we have witnessed since the turn of the century.
|
Newsletter:
3 February 2012 to 10 February 2012 - Krugersdorp, Gauteng, South Africa
