Monthly statistics on house price growth continue to paint a picture of a flat, rather sluggish property market.  Yet on the ground, some estate agencies are reporting an increase in buyer activity, consistent sales across all price brackets, and improved performance on a year-on-year basis - if only in specific areas.  Laurie Wener, MD of Pam Golding Properties’ Western Cape metro region, says there are a number of reasons for this apparent discrepancy between what the statistics are saying, and what agents are actually encountering in the market.

“The property market never stops turning, regardless of the general climate,” says Wener.  “At any given time the prevailing economic circumstances will favour a particular sector of the market or a particular type of buyer, or sometimes even a specific area.  For example, right now, some buyers who are highly mortgage-dependent or perceived as high risk may be struggling to obtain finance - resulting in emerging areas experiencing the market as bearish.  The same can be said of areas where there is a high concentration of second homes and holiday properties.  Yet the very conditions which are making the market challenging for buyers in these sectors, are creating a positive environment for cash buyers and those with low risk profiles, who now find themselves in strong negotiating positions, with a wide range of properties to choose from.  The result is that some agents continue to achieve stellar results regardless of the slow overall market recovery.”

Wener adds that one also has to consider the base against which price growth is being measured.  “In the heady days of 2006/2007 when the market was booming, year on year comparisons were being assessed off a very high base,” she says.  “But today of course the world is recovering from a global recession whose impact continues to be felt, so we are measuring off a much lower base.” 

Another category of buyer enjoying the benefits of current market conditions is the cautious, long-term investor, particularly in mature areas which are traditionally regarded by consumers – and banks - as low-risk.  “Areas like Cape Town’s Southern Suburbs, Atlantic Seaboard and City Bowl are still viewed as having solid potential for capital growth – they are in effect relatively recession-proof,” says Wener.  “These are well-established suburbs where owners tend to hold onto their properties for longer than the national average, and remain committed to the area even when scaling up or down.  Typically the kind of buyer who purchases in these areas would also be regarded as low-risk by the banks, and they are frequently of high net worth.  It is in these areas specifically that we are seeing an increase in buyer interest and activity levels across all price brackets, and it is here in particular that conservative, experienced investors are looking to re-enter the market, using the power of their high equity to great effect, and taking advantage of the bullish rental market to generate income off their investment properties.  Sellers looking to liquidate properties in these areas – whether due to financial distress or for other reasons – are creating a higher than usual supply, allowing buyers to pick and choose, and to hold out for what they perceive to be good value for money.  The result is that astute investors are able to secure good buys that will result in sound capital growth over the medium to long term and income potential in the short term, as well as using their purchase to diversify their investment portfolio.”

Wener cautions that there is still a long way to go before any significant recovery is seen in emerging market areas, particularly due to the ongoing difficulty in obtaining mortgage finance.  “Banks’ lending standards tightened up severely with the onset of the credit crunch in late 2008/early 2009,” she says, “and have also been curtailed by the National Credit Act of 2007.  Added to this is the fact that levels of household debt remaining very high in South Africa, despite last year’s above-inflation wage increases in many sectors.  The resulting difficulty in obtaining bonds remains a major stumbling block for many would-be entrants into the market, restricting sales particularly in areas perceived by the banks as being high-risk, and for individuals who are self-employed.”

Establishing market value can be confusing for both sellers and buyers, adds Wener.  “This is where the services of a truly professional agent can make all the difference,” she says, “as experienced agents who knows their areas well will be able to offer sound advice to their clients, and will be better placed to try and match up buyers’ perceptions of value with sellers’ price expectations.  In times like these there is definitely a flight to quality when it comes to choosing an agency – both buyers and sellers become more aware of the benefits of tapping into a reputable, experienced agency, backed up by sound management, a powerful brand, excellent marketing support and cutting edge IT.  The fact that PGP’s sales in the Western Cape metro region at the end of January 2011 were 18 percent ahead of sales at the same time last year is an indication of how skilled agents can adapt to prevailing market conditions and continue to produce outstanding results for their clients.”

Wener remains optimistic that the market will continue showing signs of recovery into 2011, both due to the slowly improving economic outlook, and to the sustained low interest rate environment.  “The past 12 months have seen an increase in buyer activity, as evidenced by increased show-house attendance and online enquiries,” she says.  “These are encouraging signs that the bottom of the current cycle has been reached, and that the market has shifted into recovery mode.  If economic growth can be sustained and rates can be kept low, this should support the residential property market.  And if government can make good on its ambitious plans for job creation in the coming year, thereby reducing household debt, we are hopeful that the statistics will begin to paint a less gloomy picture into 2012.”

Released on behalf of Pam Golding Properties

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