|The residential property market at present is a bit like a marathon, according to a lead article in the August edition of the Intellectual Property magazine.|
The early leader, Cape Town is beginning to falter as it hits an uphill stretch; Gauteng is pacing itself in middle place, while previously unfancied outsiders KwaZulu-Natal and the Eastern Cape have surged to the front from a poor start and are showing surprising stamina.
Generally speaking, says Pam Golding Properties chief executive Dr Andrew Golding in the article, the market has come off the boil – more so in some areas, hardly noticeable in others. “Let’s face the fact that 2004 was an extraordinary year for property, with year-on-year average growth of 28,04 percent, reaching over 35 percent in some areas. We are definitely not gong to experience this again in 2005.”
“Nevertheless,” says Dr Golding, “average house price growth for the year up till May this year was 24 percent, indicating that considerable impetus was carried over from the previous bumper year.”
From a regional perspective, Durban and Cape Town registered higher growth than Johannesburg and Pretoria during 2004, while metro growth was greater than non-metro. Port Elizabeth and East London streaked ahead, admittedly from a depressed base, to rival Durban and Cape Town.
So what lies ahead? Standard Bank’s new Residential Property Gauge, according to the article, forecasts residential property price growth of between 18 to 25 percent for this year, but Golding is a mite more cautious.
“We at PGP estimate across the board house price growth for 2005 of 15 percent. Obviously price increases will vary from region to region depending on a combination of factors.”
These include the recent unprecedented price boom, the reduction in pent up demand after several years of brisk buying, and the now fading impact of previous interest rate cuts.
“Scarcity of land in urban centres is also a contributing factor in price growth, particularly in Cape Town where house prices have outstripped building costs. Another interesting factor is that existing house prices are growing at nearly double the rate of en house prices.”
Buyers and sellers need to get the residential property market into perspective, urges Golding. “It is unlikely that we will see 30 percent to 40 percent price growth in the short term, so house-seekers and investors must realise that even a 15 percent growth factor is very comfortable. After all, at that rate you double your money in five years.”
Overall, Golding doesn’t agree that this is a buyers’ market, as some industry commentators suggest. “Simply put, buyers are more discerning and sellers are more realistic. But sales activity is still high and showhouse attendance remains good, so the interest in property is still there.”
Golding points to seasonal factors affecting the market, particularly in the Western Cape. “The Cape Town market has always had a seasonal slump, and the current winter is not only early, it’s probably the wettest and coldest for around five years. The Garden Route too is always seasonable; in fact, most non-metropolitan coastal towns are quiet.”
The group’s Gauteng offices report that the market has flattened, although seller expectations are still high. New building is still strong and there is a shortage of up-market stock. Pretoria prices are still increasing as is sales volume, but this to some extent is artificially affected by sales to diplomats and foreign companies.
Although published statistics indicate that the top end of the housing market is not performing as well as the middle-to-lower segments (which is understandable), Golding points out in the article that the luxury market continues to compete on an international stage and that foreign investors compare SA prices favourably. “There is over-demand and under-supply in the luxury market, which constitutes some 10 percent of our sales at the top end, and less than one percent overall.
If one takes our recent highest sale price for a luxury Atlantic Seaboard apartment, it is still one third off the price per square metre of a comparable flat in London’s Knightsbridge.”
Golding, meanwhile, points out that the overall housing market has a relatively new and interesting player – the emerging black middle class, strongest in the Gauteng region.
Standard Bank statistics show that the black population accounts for 45 percent of total consumer spending and that the propensity to consume is above average, and growing.
However, BER figures show that black people spend 13 percent of their total income on housing and electricity, while the white population segment spends 19,8 percent of total household income.
“There are serious opportunities for real estate professionals, as the black emerging middle class starts to catch up,” says Golding. “This in itself will have a profound impact on the property market.”