Innovation set to drive Property Market’s Recovery

Since the height of the global economic crisis, the property market has seen itself on a steady but slow road to recovery, with low interest rates and increased confidence from the banking sector causing sales figures and prices to inch steadily upwards.

Dawie Verryne, CEO of Korbitec said that whilst growth has been unremarkable, the sluggishness of the industry has given key players a chance to rethink their systems and processes – something that is likely to accelerate the market’s growth in years to come.

Burgeoning Technology

The last 18 months have seen the property industry undergo a significant transformation. The landscape of marketing and advertising is shifting and, with a focus on economically sound practices, the industry is relocating itself into the online environment.

Online property portals have recently seen an increase in consumers searching for property online – an indication of a shift in house-hunting strategies consumers are making use of in the market. With access to comprehensive reports, statistics and news, South Africa’s buying audience is becoming increasingly informed with respect to their buying options, and this is likely to trigger increased sales in the coming years.

Banking On New Offerings

With transaction figures having been essentially halved since the market’s boom in 2005/2006, the country’s banking institutions have also had the opportunity to refine their offerings to cater to the altered economic climate.

Banks have already begun to experiment with alternative loan offerings, including pension-backed lending, and increasingly tailored loan arrangements for entrepreneurs.

Pressure from the government to address the country’s housing crisis has also meant easier access to funding for those investing in entry-level housing, with bank and private sector partnerships emerging in order to address these political prerogatives.

Innovative offerings such as these are likely to become more widely available over time, with more flexible options such as short-term loans with variable interest rates set to enable an increasingly engaged audience to enter the buyer’s market within the next few years.

Interest Rate Cycles

Yet whilst these developments certainly hold promise for the local property market, the knock-on effect is unlikely to be felt within the next two years. Thanks to the low interest rate, South African households are only now beginning to absorb the debt acquired during the recession period, and it will take some time for a full recovery to take place.

The next two years are likely to see interest rates gradually rising, based on the improvement of local debt to disposable income ratios. Expert consensus suggests that interest rates should then drop, based on a traditional interest rate cycle, thus giving prospective buyers heightened levels of disposable income by 2016.

At this point, the property market is likely to see a spike in activity, with a larger pool of previously cash-strapped individuals finding themselves able to access capital.

Time To Buy?

In the years since the recession, property prices have increased in the region of 7-8% year-on-year. Although this represents a figure slightly above inflation, it pales in comparison to the double-digit growth seen in the years prior to the global economic crisis.

As a result, prospective buyers with access to capital remain in a strong position, with panic sales and bank-distressed properties creating numerous bargain opportunities.

Whilst buying a property is usually a decision made as a result of one’s circumstances, savvy investors with capital to spare could find themselves reaping significant profit in the long term, with property prices likely to remain relatively low for a while before surging upwards.

Stumbling Blocks

While the market’s recovery prospects currently appear relatively positive, they are largely dependent on the overarching economic climate. Local unrest, which has caused the Rand to slide against the world’s most powerful currencies, has seen growth slowing over the last quarter.

This tapering of investor enthusiasm has come about as a result of diminishing confidence in government delivery, as well as concerns with respect to unemployment figures.

Should this situation continue to weigh down the economy, inflation could soon increase, thereby increasing debt levels and reversing the steady growth trend seen over the past 18 months.

Steadying the Ship

Despite these concerns, expert consensus still suggests a steady road to recovery. The government’s increased focus on housing initiatives will likely result in more innovative credit lending products being rolled out into the market, and interest rate cycles indicate broader consumer access to capital by 2015.

Barring any unforeseen circumstances, these factors should result in the property market’s gradual recuperation, with a full recovery expected within the next three years.

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