ERA says property stands out solidly

JOHANNESBURG (October 15) Property values have remained remarkably solid amid the current financial system turmoil, with none of the volatility that has characterised stocks and currencies.

ERA property group CEO Gerhard Kotzé says while stock markets worldwide are still shaky, there has been no sign of similar problems in the property market.

“Property prices are subdued but they are still rising. That’s in stark contrast to other asset classes right now. Or at least that’s the case in South Africa. The UK and US property sectors are less stable. The question is, what’s different?

“Firstly, South Africa’s property already had its ‘soft landing’ before the financial market meltdown and secondly, we were not as over-borrowed on our property as the Americans are.

“We may have been getting there, but the National Credit Act has forced all consumers to be tested for their creditworthiness. There is nothing comparable in the US or UK.

“Thirdly, our banks have never treated home mortgages as they do in the US, where it’s common practice to regard mortgages as just another commodity. For example I can recall what amounted to an ‘auction’ of mortgages in New York, where, for a limited period, you could bid for the interest rate you were willing to pay.

“Fourthly we have not ‘securitised’ our home loan books by lumping together thousands of loans and marketing them to investors as a single instrument. Obviously where mortgage finance has been too readily available to borrowers, the quality of those instruments has suffered and so has confidence in property.

“Finally the South African economy remains fundamentally strong with good growth, expanding consumer markets, ample new fixed investment and good corporate profits. The news therefore, at least as far as property is concerned, is that it is not all bad.”
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