The outlook for the property market in 2008 is one of mixed fortunes but generally still positive.
Gerhard Kotzé, CEO of ERA South Africa property group, says property values will continue to grow in 2008 with analysts predicting an average of 10% on a countrywide basis.
“That’s a far cry from the 30% and more we saw at the peak of the property boom but it’s still a respectable return that beats CPIX inflation.
“Property should therefore remain very much on the radar of investors, particularly in view of tremendous volatility in world financial markets, compared with which, bricks and mortar is a consistent performer in SA.”
For clues to opportunities in 2008, he says, last year’s patterns provide important pointers. All regions in 2007 performed relatively well but there were some stand out performances such as the Free State where growth of close to 30% was reported in the major metros, thanks mainly to restrictions on new development.
“Sector wise, the biggest volumes were recorded in the R1m to R3m price bracket while the upper end of the market continued to perform well due to its insensitivity to interest rates and factors such as the National Credit Act.
“However the lower and affordable end of the market was undoubtedly impacted by the NCA, begging the question whether Reserve Bank policies in this respect, coupled with higher interest rates, is entirely the right strategy and could in fact be overkill in an attempt to quell inflation.”
Ironically, notes Kotzé, prices at the affordable end of the market continue to skyrocket with the Lightstone Organization reporting a 39% increase on average in township values at the end of the first quarter of 2007. “This is an indication of normalisation of this end of the market but it also means that, taken together with other factors, affordability at this end of the market is now a critical issue.”
Going forward, he says, it would seem stock exchange volatility would continue in 2008, business conditions will be tougher and interest rates could actually increase further.
“The good news is that South Africa should escape the home mortgage concerns of other parts of the world, that there will be a gradual adjustment to the Credit Act process, that interest rates should start coming down in the latter half of the year and 2010 expenditure should keep the economy growing.
“For canny investors there are thus opportunities particularly in higher density apartment investments and in clever choice of regional growth areas.”