SA residential property once again a sound investment

Throughout South Africa, says Tony Clarke, Managing Director of the Rawson Property Group, there is now a growing confidence in residential property as an asset class. This, he says, is fully justified for a whole variety of reasons - the most fundamental of which is that demand now far exceeds supply.

“Over the last two or three years,” said Clarke, “new property developments in South Africa was reduced by almost 80%. We have seen developers either close shop entirely or, if they have been able to continue, find that they cannot compete with second hand homes price-wise.”

The developers’ predicament, he says, has been exacerbated by on-going difficulties in obtaining bank finance (and very strict conditions when it is actually awarded), by the very high cost of urban and suburban land (some of it bought at previous peak level prices), the huge delays encountered by having to conduct a wide variety of assessments, the struggle that involves obtaining planning approvals and by the growing ability of pressure groups to delay new projects.

“In the circumstances,” said Clarke, “existing, ready-to-sell stock has become increasingly valuable and sought after.”

Also driving prices and leading to stock shortages, said Clarke, is the fact that the fast growing, emerging middle class - the “Soweto to Sandton” upgraders - have become avid home buyers and are likely to be the front runners among mortgage bond applicants. In today’s scenario, said Clarke, they are encouraged by the slow but discernible easing up of the banks’ loan criteria and the banks’ growing appetite for this type of business.

Another highly relevant factor affecting the stock situation, said Clarke, is that the flood of distressed homes onto the market experienced in 2009 to 2011 is now drying up. Recent reports from major banks, he said, suggest not only that they now have far less distressed stock but that what is still being sold is achieving prices closer to the true market value.

Foreign buyers, said Clarke, are now once again more evident in South Africa and the reasons for this are quite obvious: the exchange rate against major currencies is still slanted very much in the foreigners’ favour and they are increasingly aware that South African residential property saw a 5% nominal growth rate and performed better than 85% of the developed world’s residential stock in 2012.

“To my mind,” said Clarke, “any form of pessimism regarding South African residential property is no longer justified. It will, of course, continue to be affected by local and global economic fluctuations and, except in a few special areas, growth is unlikely to be spectacular. However, it’s now absolutely clear that South African residential property has come through the downturn with remarkable resilience and from here on will offer very sound investment opportunities.”


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