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Send  Share  RSS  Twitter  19 Nov 2010

PROPERTY: The Ups And Downs Of Property

 



Recent Western Cape Business News

The year 2010 has been a remarkable year in many ways, said Andrew Golding, CE of the Pam Golding Property (PGP) group, speaking in Cape Town yesterday.

It has certainly been an astonishing period for global housing markets. Prices have boomed, crashed and, in some markets, boomed again – all in the space of five years. The first signs of the global downturn were seen in Israel in early 2006, when prices began to slip on the back of tightening credit availability. The real catalyst for the fall, however, was the reaction of banks to the emerging sub-prime crisis in the United States. Prices there began to fall as early as summer 2006, and from that point forward, prices peaked and began an inexorable slide across the world. The whole process took two years to play out, affecting Portugal and Ireland in late 2006, moving through the UK, Latvia, New Zealand, Denmark , Hungary and ourselves  during 2007and finally afflicting Croatia, The Czech Republic, Finland, France, Greece, Hong Kong, Iceland, Singapore and China in 2008.

On average, prices fell by around 17 percent across the globe during 2007and 2008. The next logical phase of the market cycle, bearing in mind the problems gripping most developed economies at the time, would have been for prices to languish at these low levels.  Instead, much to the surprise of many, they began to bounce back.

Since early 2009, global house prices have recovered, on average, by 10 percent. By mid-2010, values were only around nine percent below their 2006-2008 peak.  After a decade-and-a-half of rising prices, which had seen growth of 100 percent, 200 percent, or even 300 percent in some markets, a nine percent decline doesn’t actually reflect the way many people are feeling .

Despite recent growth, there are several countries where prices are still well below the peak of the market. The United States, down 31 percent, is the most high-profile, however a range of European countries, which were the worst casualties of the speculative investor bubble that formed in the run-up to the credit crunch, are still suffering badly. Values in Lithuania, for example, have dropped by an incredible 63 percent. Latvia (-43 percent), Bulgaria (-34 percent) and Ireland (-31 percent) have also fared very badly.

Closer to home ,the year began optimistically with both sales volumes (units sold) and values on an upward trajectory for the first four months of the year, and we all hoped it was the end of the down cycle and the beginning of another up cycle. However this was not to be and around May the market started to slow again both in volumes and value appreciation, the Soccer World Cup came and went -, marvellous as it was in so many ways but from a property perspective and in the short term it served to distract and further dampen an already slowing market. Since then and until now the market has improved marginally in terms of volumes and recently in terms of sentiment, but house price growth has continued to slow down. The market has, for the time being anyway, settled into a new steady state at these levels.

Real estate companies have had to come to terms with the current reality and a new paradigm where the mortgage environment is what it is, and the house sale environment is what it is. A high percentage of deals that would, under pre-recession circumstances, have been concluded are driven by buyers who cannot successfully find bond finance, and coupled with this with have a scenario where the average of 90 days formerly taken to close a deal is now some four months and four days.

It has been increasingly difficult to get buyer and seller to agree and bring their expectations closer together. This is against the backdrop of a market where agents are in the midst of accreditation for the new qualifying criteria for estate agents, comprising RPL (Recognition of Prior Learning) with 40 hours minimum of work required and with it the associated challenges and fears of some established estate agents who are in the twilight of their careers and now have to go through the same accreditation process.

Cash buyers are still very evident in the marketplace – and other activity continues as a result of normal churn. In the rental market there is a huge demand in the entry level and lower sector of the market from those having to rent due to lack of affordability in terms of buying their own homes.  Rental yields are still not exceptional although these vary per area and location, and are indicative of supply and demand.

Western Cape: Cape Town metropolitan area:

This region has generally shown about 23 percent growth in sales turnover over the same period last year. While the luxury end of the market, which held up so well at the beginning of the downturn, has slowed down considerably, we have experienced a steady increase in activity across our lower and middle price bands with a high level of cash sales. The areas still struggling are those which are predominantly holiday home areas and those highly mortgage dependent.

Some investors are re-entering the market using their cash as a strong negotiating tool to buy value for medium to long term investment. The rental market has flourished due to the scarcity of mortgage finance and there is generally a shortage of rental stock which is pushing rentals up, and we are seeing a level of top end long term rentals, of R30 000 to R100 000 per month, never before experienced . In the past few weeks activity at the top end is increasing. Cash is king and there is still a market for niche buyers as has been proven by the rapid off plan sales at Amalfi – a development at Mouille Point which is of unusual, double volume design.

The Atlantic Seaboard and Southern Suburbs are relatively recession proof. They are well established and well supplied with schools, shops and all the facilities required for primary residences. Also with habitable spaces being limited by the mountains and sea, there is generally a higher demand than supply which underpins value. We have seen an early run on the Atlantic Seaboard this season with very good sales of properties under R3 million in the Atlantic Seaboard and City Bowl area, and with good high end sales in Clifton and Fresnaye eg R5.85 million for a plot, two bungalows in Clifton sold for R18 million and R20.5 million respectively, and a Kommetjie beach house sold for R8.75 million. In addition, in one weekend in October (2010,) we sold a knock-down home in Clifton for R11.5 million – with two buyers in competition.



 
 
 
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