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PRESENTATION BY DR ANDREW GOLDING

The year 2010 has been a remarkable year in many ways, said Dr Andrew Golding, CE of the Pam Golding Property (PGP) group, speaking in Cape Town (17 November 2010).

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.
The South African market in total probably peaked at approximately R18 billion in sales per month in the heady days of 2005/06 to the current market which stands at around R10 billion a month. In other words the market has almost halved with annual total market sales now at around R120 billion a year. Similarly unit sales have contracted from a total number of transactions of around 20 000 a month down to about 10 000 a month.
Against this backdrop we have been delighted with our performance this year. For the year to date we have increased our sales turnover by 20 percent over last year and are anticipating achieving sales turnover of approximately R12 billion for the current financial year ended February 2011. All operating regions are on track in terms of our performance projections.

Regionally there were some interesting trends, reported from a PGP perspective below:

Gauteng: Johannesburg & Pretoria:
In Gauteng in the Johannesburg and Pretoria metropolitan areas, this region as a whole performed above budget in respect of both transaction units and value with perhaps the most striking feature being the low level of interest at the very top end of the Gauteng market in the 1st,2nd and 3rd quarters of this year. In the Northern Suburbs of Johannesburg, a current trend is that the middle markets are doing very well. We are noticing good show day activity and keen demand for property. The lower, cheaper sectional title markets have exhibited a trend where there is a shortage of property for sale coupled with a high demand. Most areas will offer good returns by virtue of their position. The greater area surrounding Sandton and the lucrative business nodes have always offered sound returns. Future growth areas would be areas around the Gautrain nodes. In Bedfordview, most of the demand is in the R1 million-R2 million market, which is low on stock. We do anticipate that investors should be coming back into the market as there is a high demand for rental properties, and with selling prices being under pressure and interest rates being low, the return is good.
In Pretoria, the stand-out feature has been the fact that full title homes in well established walled and gated security estates seem to have outperformed other sectors of the home market in terms of value growth. The estates did not escape the effects of the recession but the fact that these homes are normally owner occupied and well maintained, coupled with the fact that distressed sales in these estates are few has therefore had little or no dilution effect on prices. Estates are very popular with tenants and these homes fetch higher monthly rentals than homes in normal residential areas. Rentals are as high as 0.75 percent of the market value of the home monthly, while normal residential areas, apart from the areas where embassies rent, will fetch 0.55-0.6 percent of the market value of the home monthly.  Upmarket areas such as Waterkloof and Brooklyn are also very good areas for investment. Embassies are all situated in these areas and a high demand for rental properties assures that a high rental is achieved, however the ceiling on monthly rentals in these areas is around R55 000. The biggest demand for rental properties overall is in the price range between R10 000-R20 000 per month.
Looking ahead, there is a lot of commercial development taking place in Pretoria including the word that we are shortly going to have at least four 5-star hotels. A confirmed fact is that two banks have signed lease agreements to move their regional offices to Pretoria – a move which will stimulate the demand for properties in Pretoria.

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.

Western Cape: Boland & Overberg regions:
A highlight is the Stellenbosch area, which continues to hold enormous appeal for a wide range of buyers, from families drawn to its excellent schools, world-class university, spacious homes and relaxed way of life, to upcountry buyers wanting to relocate to an area with a lower crime rate. PGP’s Stellenbosch office has just recently sold 86 erven in eight days in the new development, Brandwacht, where sites from 380-990sqm are priced between R795 000 and R2.75 million. In addition, we sold the most expensive property in Paradyskloof this year for R7.4 million, while De Zalze Winelands Golf Estate has also continued to hold prices, with sales concluded for homes sold for R11 million and R8.5 million respectively.
A large part of the Boland & Overberg regions are coastal and small country towns and therefore primarily in the second homes/holiday homes market. It’s in these markets that supply is high and cash buyers are being very selective, looking for bargains.  Taking these market conditions into account offices like Hermanus have fared well concluding most sales between R1 – R2.5 million and with a lagoon property selling for R15 million.  Wellington is another office which has performed exceptionally well, exceeding budget by 63 percent and achieving record sales in the last couple of months. Commercial farms have been difficult to sell given the strong rand in an export based agricultural region.  Only very well run farms will trade in this market. 

Enquiries from upcountry, Gauteng and KZN, are still strong as these buyers are looking for areas with low crime rates and a more relaxed lifestyle. In Franschhoek the luxury second home market is improving, probably attributable to an improvement in the global economy, coupled with more realistic house prices than a year ago. Somerset West and Paarl have also seen an increase in enquiries between R2.5 million and R4 million. Stellenbosch, Franschhoek, Paarl and Somerset West are all areas that will continue to show good returns on a long term property investment. There is a constant demand for property as these towns offer a great lifestyle, with good schools, work opportunities and are close enough to Cape Town and the city’s Northern Suburbs to commute to work.  The Northern Suburb areas offer exceptional good value for money, however, we are finding that stringent lending criteria are seeing approximately 60 percent of sales falling through.  If you are looking at a holiday home, now is the time to buy - all coastal towns from Gordon’s Bay to Hermanus offer great value for money.

KZN Region:
In KwaZulu-Natal the residential property market showed a recovery early in the year, but this was not sustained in the second half. Year on year unit sales were higher by 41 percent, however price per unit reduced. The top end has not been particularly active and the demand for homes has been in a lower price band in many areas such as Pietermaritzburg.  The value offering is the key to sales and the greater Durban area including Amanzimtoti, Montclair, Pinetown, and Westville have seen an increase in activity which should result in sales. Durban North, Umhlanga and north to Ballito are areas which have benefited from the growth around the new business nodes close to the King Shaka International Airport at La Mercy – a trend which is bound to continue.

The new airport has created positive sentiment in the market, and rental enquiries have doubled. Sales on lower cost properties ie under R1 million, have picked up. The opening of the airport at La Mercy, coupled with the ongoing success and popularity of business hubs and residential estates in Umhlanga and La Lucia has further boosted the desirability of the Ballito and surrounding coastal areas such as Blythedale Beach, Salt Rock and Sheffield as a location for permanent residence.

Eastern Cape and Garden Route:
Eastern Cape:  East London is the leader in sales with a very buoyant market between the price ranges of R1 million to R1.8 million - the top price achieved this year being R6.4 million in Beacon Bay.  Some sellers are still holding out for the prices achieved in 2007 and this is causing some delay in the marketing times of these properties. In Port Elizabeth, the market is reasonable below the level of R1.5 million with the market regarding top end properties over R2.5 million being very quiet. Small development s are starting to attract attention in the price range below R800 000. There is a large amount of stock but it is mostly overpriced and sellers who are keen to sell are now adjusting their prices according to the market demands. The top price for a property in PE achieved by PGP is R10 million. The Grahamstown market is still active but with very little stock available in the price range below R1 million, however top end properties are not attracting the same attention. Most of the market is between R800 000 and R 1. 8 million, with the top price achieved this year of R3.2 million for a new penthouse - which is an unusual occurrence for Grahamstown.

In the Karoo region it is interesting to note there is a relocation of people from Bloemfontein and Gauteng – mainly those who are retiring and who cannot afford the coastal prices any longer, so they are buying in the central Karoo towns for prices in the R130 000 to R550 000 range. Graaff-Reinet is slightly more expensive at R750 000 to R1.2 million. Generally there is activity among buyers as they shop around between the various towns. Loxton in the Northern Cape is similarly attracting attention from the Cape as is the Van der Kloof Dam as an end destination for the Free Staters. Farms are still fairly active with numerous enquiries from buyers but little commitment. There is some evidence of sellers reducing their expectations regarding prices achieved some years ago. Top price for a farm this year was R20.5 million in the Graaff-Reinet district. The proposed ‘Green Paper’ before parliament (regarding land reform) is having an effect on the attitudes of prospective investors.

The leisure markets along the coastal areas are generally slow and the winter months in particular were not encouraging. However in St Francis Bay spring has brought renewed confidence and sales are staring to occur again. Earlier in the year our PGP office sold two properties for R7 million on the marina. Kenton on Sea is the one place where plots at the Kenton Eco Estate have been selling. The top price at Kenton has been R2.8 million.
Garden Route: The market here, being very largely a leisure destination, has been slow. The effects of the recession are certainly being felt. However there are buyers around, but the attitude is largely ‘wait and see’ as they anticipate that prices will adjust to the reality of the market conditions. Houses that are correctly priced are moving and these are generally in the lower bracket of R700 000 to R1.5 million. Buyers are looking up and down the Garden Route for the best values at present. Some exceptional sales have however occurred in Knysna of R16.9 million at Pezula and R8 million on Thesen Island. The top price for a plot at Plettenberg Bay was R6 million on the beachfront drive. Other exceptional prices achieved are R6 million in the Wilderness and R8.7 million at Fancourt.  Mossel Bay’s top price is R3.5 million.
What is of interest is the demand currently being experienced for holiday accommodation for both the Eastern Cape and Garden Route over the coming season. Rental properties are being snapped up daily, so the expectation is high for a bumper festive season. Good investments are to be found all over. Wherever the sellers are realistically priced a good deal is possible. The expectation is that this depressed cycle will turn soon and then prices will escalate significantly.

Northern Cape, Kalahari Region:
Upington: With the recent global Solar Energy summit placing this region firmly in the spotlight for enormous future solar energy development amounting to billions of rands, consumers are discovering the true value in this area. The lack of crime, family centred lifestyle and an abundance of water are some of the attractions. With the Orange river running through the town and a good infrastructure, buyers are snapping up homes in the price ranges from as low as R200 000 to a riverside mansion for R4 million. Rentals are higher here than in most parts of South Africa because of a lack of housing. Good returns on investment are therefore possible. This region also has seen the successful sale of many farms, partly because of a lack of land claims and a strong emphasis on food security. The highest price achieved in the Gordonia region is R13.8 million.

Central or Inland Provinces:
While the same number units were sold in September (2010), year-to-date sales are up slightly up due to sales in the affordable market.  Second home sales in picturesque destinations such as Dullstroom and Clarens have picked up but once again mainly in the lower price ranges.  The Bloemfontein market has been most resilient and PGP sales increased by 39 percent year on year and values were higher.  Bloemfontein continues to be a city which offers a good lifestyle ie good schools, university, uncongested suburbs, wide open spaces and historical interest. There are many lifestyle farms coming to market around the country, for example game farms, trout farms and mountain retreats which when competitively priced could attract buyers at the top end.  Towns in the interior are dependent on mining and manufacturing and their local housing markets should show a recovery as these sectors show growth.  The government’s promise to help create jobs is a much needed boost particularly in the inland provinces.

International:
From an international perspective, PGP’s International Division is currently investigating opportunities through Africa, and in the next year aims to expand its growing Southern African Development Community (SADC) footprint to include representation in the East African countries of Kenya, Uganda and Tanzania and in the West African country of Angola. Over the next five years it is our intention to be represented in Nigeria, Mali and Ghana. We have just made a new franchisee appointment in Botswana and Namibia to improve our productivity in these two countries. In Zimbabwe it is business as usual, with the property market having proven volatile during the past year. However there is a slightly more optimistic sentiment in the market at present, and PGP’s Zimbabwe office reports seeing more South African investors showing signs of interest in the market.
Regarding the Indian Ocean Islands of Mauritius and the Seychelles, once again this year we have seen strong purchases by South Africans. Discerning South Africans have taken advantage of the strong currency in purchasing property in the Indian Ocean. In Mauritius we have achieved strong sales in respect of properties priced below USD1 million, while in total we sold in excess of 70 units at a value of ZAR200 million.

Eden Island, in the Seychelles, continues to be a favourite among South Africans, and here we sold approximately 75 units at a total value of USD65 million – mostly to South Africans. Investors continue to enjoy the unparalleled beauty of the island coupled with solid income and growth potential.
 Speaking of growth our Mauritius office has also re-sold several units during the course of this year in our first international offering in Mauritius, being Tamarina Golf Estate – all of these units have been sold at double the price that they were bought at showing significant capital appreciation over a short space of time.

In addition to our Indian Ocean Island offerings we also held a successful launch of two London developments being Trinity Place in Raynes Park and Queen Mary’s Place in Roehampton – both situated in South West London. Sales to the value of GBP 10 million are under negotiation. Given the strength of the ZAR we expect this trend to continue into the new year.

Pam Golding Hospitality:
Pam Golding Hospitality has positioned itself as a significant and specialised division within PGP. The division includes three successful & specialised companies; Pam Golding Hotels, Pam Golding Lodges & Guesthouses and Pam Golding Tourism & Hospitality Consulting. Their key activities include the facilitation of transactions in the hotel, lodge and guesthouse industry together with operator procurement, raising of finance, general consultancy, valuations and hotel feasibility studies.

The Pam Golding Hospitality Division recently reached a significant milestone as it broke the figure of R5 billion in terms of the capital value of transactions facilitated in the Southern African hospitality industry.
Recent occupancy figures released during HICA 2010 illustrate that the new room inventory in South Africa is being absorbed relatively well by increasing demand for hotel rooms particularly in Sandton and Cape Town where September 2010 year to date occupancies for the 3-Star market have increased compared to same nine months last year.

Looking ahead and at the South African economy, with interest rates at their lowest for three decades, a strong rand, underpinned by a seemingly ever-rising dollar gold price, plus foreign money pouring in to our equity and bond markets, all helping to reduce our Balance of Payments deficit, we should be enjoying a consumer boom.  In global economic terms we have kept our head while all around us are losing theirs. The global meltdown has in fact provided South Africa with a wonderful windfall. Those prophets of doom have perhaps forgotten when our currency was worth a third of its current international value, when our foreign debt was called and we were forced into a debt standstill and had to run near-nightmare trade surpluses – keeping growth, imports and spending down for more than a decade.

Currently, international surveys indicate that the world’s economic difficulties will continue for quite a few more years. As a result institutional investors have turned to emerging countries and South Africa is popular due to its conservative macro-economic policies and great corporate assets. The rest of the world is aggressively striving to kick-start their economies and get back to a growth cycle. This means more demand for commodities, which will in turn ensure prices remain high, or go higher. A burgeoning commodity windfall could wipe out our current account deficit – and probably the budget deficit as well. This means the country’s growth prospects will be further enhanced.

From a housing market perspective low interest rates and falling inflation have improved the situation, and bank analysts suggest that a significant recovery in the housing market is still some time off. However, as the South African economy retains its resilience, this is expected to provide further optimism for the property market – particularly as we head well into summer, which is generally a more positive period for the housing market in many areas.

As a group, we continue to focus on market innovation and increasing our market penetration both locally and globally, amid a highly competitive trading environment. It is interesting to note that every month, and on-line, Pam Golding Properties reaches over eight million people from over 190 countries. Our website is ranked by Alexa.com as the most visited and searched real estate website in South Africa, our monthly average website visits over the past three months are 230 373. Of interest is that over 4000 visits are via mobile phones, a figure which is growing exponentially each month.

In addition, PGP is the first real estate agency to be approved as an official member (non-publishing) by the South African Digital Media and Marketing Association (DMMA) - formerly known as the Online Publishers Association. (Non-publishing members, as opposed to publishing members, are those which do not accept advertising on their sites and therefore do not require formal ad ratings.)  The DMMA is an independent, non-profit organisation focused on growing and sustaining a vibrant digital industry while building trust in the digital medium as a means of reaching and engaging with consumers at large.

As an approved member of the DMMA the PGP group complies with its Code of Conduct, and online regulations and best practice. In addition we now have access to DMMA and industry research, including Nielsen’s online market intelligence reports, enabling our agents to keep buyers and sellers well informed with the most up to date, relevant market information.

Issued by Gaye de Villiers


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