South Africa’s real estate market must innovate and adapt

The past four or so years have seen mammoth changes in trading conditions and economic stability the world over. However, despite numerous international economic crises, during 2011, the South African property market adjusted back to some sense of normality. “The last three years,” says Peter Gilmour, Chairman of RE/MAX of Southern Africa, “have changed the face of real estate on a local level forever.”

Gilmour says that despite all indications of slow and steady trading conditions for the 2011 year, RE/MAX of Southern Africa posted its best winter (June – September) sales results in the history of the company.

Added to this, he notes that the group sold 20 new franchises and attracted 350 new agents who combined have an average of eight years of experience in the property market. “Overall, the RE/MAX of Southern Africa sales figures for January to October were up 30% on the same period last year,” Gilmour adds.

While 2011 can be called a success for RE/MAX of Southern Africa and its agents, what lies in store for 2012? While Gilmour notes that it is difficult to predict the future when there are so many variables that can affect the market that the real estate industry has no control over, he believes that there are a few key areas that those in the property market will need to track and adopt their operating strategies around in order to ensure success. These are:

Interest rates:

Currently at 9%, the interest rates are the lowest they have been in 38 years, and Gilmour predicts that they will remain as stable as they have during 2011 over the next 12 months.

Access to finance:

Over the past year, South Africa’s financial institutions have marginally relaxed their lending criteria to the point where close on 50% of all home loan applications are approved. This is a vast improvement from the 26% home loan approval rate recorded in the midst of the recession in April 2009, but still a long way off the approval rate of 80% achieved at the height of the boom in 2007.

“While deposits of between 10% and 30% will remain a reality for those looking to secure a property, during 2012 we expect to see a greater risk appetite from the financial institutions, as has been the case in recent months,” says Gilmour.

World economy:

“The world as we know it has changed. The US and EU countries have massive debts which indicate a long recovery period for those economies in general and their property markets,” says Gilmour. “Unemployment is high the world over, however, South Africa, with an unemployment rate at 25% in the third quarter of 2011, is one of the worst in the world.”
While this figure shows a marked improvement from the 26,38% recorded between 2000 and 2008, it is still way off the 23% recorded in September 2007 and the 15% by 2020 goal as set by government at the beginning of this year.

Big shift in consumer behaviour:

Consumer purchasing behaviour is constantly evolving, however, what is becoming more and more evident, according to Gilmour, is that consumers are often basing their purchasing decisions on a set of values that focus on service levels and the quality of the product offering.

This is because today’s consumers are research driven, and can compare products and services quickly and efficiently to ensure that they are getting the best value for money and purchasing through socially responsible organisations. Global shopping malls and online shopping is featuring as a purchasing vehicle more so than ever before, which means today’s consumers are exposed to a larger range and therefore have more choice.

Gilmour adds that the continuing trend towards a more urban lifestyle is also a big influence on purchasing decisions as more and more people move into the world’s cities. In fact, it is estimated that by 2030, 75% of the world’s population will live in the city areas, compared to the 1960 figure of 30%.

A company’s community involvement remains a key element in the buyer’s perception of the brand, and those companies are socially responsible as well as those that have a solid green focus and promote environmental awareness are rated more highly.
Gilmour points out that over the past seven years, RE/MAX of Southern Africa has donated approximately R7-million to the Reach for a Dream Foundation and the group has also developed an environmental policy and a green rating system for its offices.

Gilmour also notes that for the foreseeable future those businesses that promote and encourage Broad Based Black Economic Empowerment (BBBEE) will continue to thrive and gain support across the South African market spectrum. RE/MAX of Southern Africa has been rated as a Level 4 company in terms of BBBEE for the second year in a row, and is the only real estate company in South Africa to be ranked at that level.

Sharp rise in emerging markets:

South Africa’s inclusion into the BRIC group, consisting of the world’s principal emerging markets of Brazil, Russia, India and China, ideally places the country for additional foreign investment and puts it firmly on the map as Africa’s leading economy and as a future global economic leader. “South Africa’s inclusion into BRIC will also have a positive impact on the local market as there is no doubt it will attract investment and fuel both the economy and real estate market alike,” says Gilmour. Aside from the anticipate sharp rise in the economies of the countries that are a part of BRICS in the near future, for South Africa, the future holds great potential as investment bank, Barclays Capital, lists it as one of the top ten advanced emerging markets, describing South Africa as part of a new breed of countries poised to exhibit solid and stable growth. Added to this, PricewaterhouseCoopers, expects South Africa to be the world’s seventh-fastest growing economy up to 2050, with growth averaging 5%, as reported in The Economist earlier this year.

Real estate professionals:

Gilmour says that although many buyers research property online, professional estate agents will remain the key element in negotiating the buying and selling transaction. South Africa’s estate agents have upped their skill levels with the NQF qualifications and many property groups are introducing more and more training to ensure their agents remain at the top of their game. “RE/MAX of Southern Africa, for example, spent 69 out of the first 100 days of 2011 on training its agents and brokers,” says Gilmour, who notes that the group has always had a strong focus on training and provides world-class proprietary programmes that are internationally acclaimed and endorsed by the world’s leading professionals.

It’s the end of the real estate world as we know it:

“For real estate businesses, the trends that will drive the next five years are here already. They are brand focus, lead generation, quality service, sustainable core values and an ability to service all markets, not just niche segments. It is these elements that will determine success or failure in real estate during 2012,” says Gilmour.

During 2012, changes in the nature and practice of real estate will continue and accelerate, according to Gilmour. He says that technology will continue to evolve and reshape the way in which property transactions are handled, while importance will continue to be placed on businesses supporting the communities in which they operate. The rental market is also set to grow rapidly.

“While it’s anyone’s guess what will happen in the legislative environment, general economic conditions and political issues, we can control how we react to changes in our environment and therefore trading conditions. It’s all about attitude – we need to find the opportunities that are available. South Africa’s property market has returned to normal and is faring well, especially in comparison to other countries around the world which were harder hit by the recession. We expect the market to continue on its current path of normal trading conditions, with no big lows and no big highs, during most of 2012,” Gilmour concludes.

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