Flying in the face of sentiment

“Global economic concerns, riots, war, famine and local socio-political unrest have all contributed to the pall currently hanging over the property markets of South Africa and the rest of the world for that matter,” says Biehler.

“Nonetheless if you look beyond the upheavals there is still a lot going for this country. Our banking and financial systems are sound, our national debt  is low, we still enjoy a comparatively high standard of living and the country is blessed by an abundance of resources, natural and otherwise. Yes we have issues but which country doesn’t?

Another factor which could further dampen buyer sentiment is a recent report by property economists Rode & Associates which says that property in South Africa remains “overpriced” and will probably decline in value over the next few years.

Remarks Biehler: “Our view is that while this may be true in the short to medium term, property values will ‘revert to trend’ as the economists say and there will be an inevitable recovery.

“The question is where should you be when that happens- sitting on the fringes in a rental property or being an owner and therefore in a position to laugh off rental increases and enjoy an appreciating asset?

“Admittedly, property is no longer a ‘get rich quick’ proposition but that’s not an altogether bad thing. The heydays of the pre-recession property market are long since gone and purchasing property now must be seen as a long term investment as history shows that time and again property has proved itself a profitable investment.

“Would-be property buyers concerned with the negatives need to shift their focus to all the positives working in South Africa’s favour and make a decision now or resign themselves to the fact that they are probably going to have to rent for some time to come as the banks are beginning to tighten their lending criteria once more.”

Lending credence to this is the fact that bank rate concessions have all but dried up.  A few months ago, banks were willing to grant clients as much as 1, 5% off the prime rate of interest. Not so anymore.

“Moreover, although there is talk of an upcoming interest rate cut occurring towards the end of 2011, many analysts believe the Central Bank would be loath to cut rates in an environment where wage demands have been so far above inflation and the rand could potentially depreciate still further.”

The Reserve Bank’s official repo rate has been at a 30 year low of 5.5% since November 2010, after retreating from a peak of 12% in December 2008. Biehler remarks that such low levels cannot be sustained forever and that interest rates will inevitably increase once again.

Further underpinning Biehler’s call to buy now is Huizemark’s property projection models which draw on the company’s 50 years of property market experience. Huizemark is of the opinion that interest rates could peak at around 12% or even 13% and that an upswing in general property market conditions will only occur towards 2016.

“Accordingly, fence-sitters really shouldn’t delay as they can probably still secure a home loan at a reasonable rate right now. Failing to do so could cost hesitant buyers dearly in the long run as higher interest rates add considerably to the cost of a home loan over the years thanks to compound interest.

“The property market is cyclical and property prices will increase again which is why buyers should take advantage of current conditions as they will undoubtedly benefit in the long run,” concludes Biehler.

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