Some boom amidst gloom
While the South African property market is experiencing challenging times, data released by the South African Property Transfer Guide (SAPTG) indicates that the picture is not as gloomy as some of the more alarmist reports in the media might suggest.

"It’s not all 'doom and gloom' across the entire real estate sector," confirms Dieter Deppisch, SAPTG National Training Manager. "While certain segments within specific areas in South Africa have experienced a fall in prices, there is reason to believe that trading conditions will become bullish in the short-term."

Acknowledging that the residential property market, in general, is going through a downturn, Deppisch argues that this is a natural part of the market’s cycle. "The industry is going through what economists call a 'correction in the marketplace'," he explains.

"The realty industry was hit by a 'perfect storm' of factors such as the National Credit Act (NCA), Eskom issues, regional instability (i.e. Zimbabwe), rising inflation, rising interest rates and, to a lesser extent, the US sub-prime crisis. Currently it is definitely a buyers' market," added Deppisch. "This simply means that house pricing, in the middle segment of the market in particular, is far more realistic than 18 months ago."

Drawing on the detailed data available through SAPTG’s advanced online property reports, Deppisch maintains that it is largely the middle segment of the residential market that is feeling the worst effects of the current downturn.

"SAPTG data paints an accurate picture of what is happening nationally, regionally and all the way down to street level," he asserts. "The lower economic end of the market is actually experiencing growth in both value and volume of sales. Similarly, there has also been a healthy increase in the value of sales at the very top end of the market, whilst this has been tempered by a decrease in volume in most areas."

‘Bond battalions’ booming

Deppisch uses the Gauteng suburb of Protea Glen to illustrate conditions at the lower end of the market. "If we compare the first seven months of 2007 with the same period this year, our data indicates that the suburb has experienced excellent growth," he confirms. "Excluding transfers valued at R100 000 or below, (which may typically include RDP housing and deceased estates), the volume of transfers is up from 517 last year to 548 this year."

The average price has risen by a healthy 19 percent from R239 328 in 2007 to R285 000 this year. "The data clearly shows that this large suburb hasn’t been hit by the real estate recession," observes Deppisch, "and is, in fact, still experiencing healthy growth."

Protea Glen falls into the 'Bond Battalions' category in Clusterplus, Knowledge Factory’s acclaimed geo-demographic segmentation tool, which denotes that this category includes suburbs that are largely made up of young parents weighed down with the responsibilities of their families, bonds, rates and taxes and the maintenance of the second-hand family car.

Upper crust holding onto value

SAPTG data reveals that some suburbs in the upper economic end of the market are also doing well. Suburbs that fall into the 'Upper Crust' and 'Pearl Strings' categories of Clusterplus — typically featuring large houses, with immaculate gardens, swimming pools and tennis courts, in the leafy, older neighbourhoods — have experienced a drop in transfer volumes since last year, but not in value.

"The Johannesburg suburbs of Sandown and Bryanston epitomise the situation," notes Deppisch. "Sandown has seen average transfer values increase by 17.2 percent, while the volume of sales has dropped by 28 percent. Similarly, average values have increased by a vigorous 31.2 percent in Bryanston, even though the suburb has experienced a 10.5 percent drop in the volume of sales."

With healthy growth being experienced in much of the top end of the market, one suburb stands out in particular. Also in Gauteng, the suburb of Sandhurst has realised an astonishing 49.1 percent increase in average transfer values and only a 10 percent drop in volume. To illustrate: "One property in Sandurst was bought for R17.25-million in 2005 and sold for R59-million just a few months ago,” explains Deppisch. Buyers at this end of the market, typically, are unaffected by the tight lending criteria of the NCA and include both local and foreign cash buyers.

Light at the end of the tunnel

Drawing on the 15 years of comprehensive transfer information available through the SAPTG, Deppisch disputes the pessimistic claims of some property analysts that property values have plummeted across the board. "What is true is that there are areas in the country where prices have fallen by 30 to 40 percent and even more," he concedes, "but the fall in property value has been largely confined to the middle sector of the residential market. In addition, it should be noted that at times the perceived 'decrease' is artificial, reflecting the difference between a seller’s unrealistic wish-price and actual market value or the difference between a ‘sellers cycle’ price compared with prices in the ‘buyers cycle’. At times even estate agents are to blame since some offer an unrealistically inflated value to a prospective seller simply to acquire a sole mandate."

Clarifying that the middle-segment consists predominantly of properties between 140m² and 220m² that have an average transfer value of R967 000, Deppisch admits that it has been 'hit pretty hard', with volumes down by as much as 35 percent nationally and real growth slightly below CPIX inflation calculated year on year. He remains adamant, however, that the future looks favourable even for this segment.

"There is light at the end of the tunnel even for the middle segment," he concludes. "Most analysts agree that inflation will peak by the first quarter of next year and that the first rate cuts can be expected before the end of 2009. What this means is that the current correction could well be over within 18 months and we will begin the cyclical shift from a buyers' to a sellers' market again."

Article by: www.iafrica.com