property still good in 2008
7 January 2008
Is property still a good investment? According to Gerhard Kotzé, CEO of ERA South Africa property group, the outlook for the property market in 2008 is one of mixed fortunes but generally still positive. He says property values will continue to grow in 2008 with analysts predicting an average of 10 percent on a countrywide basis. “That’s a far cry from the 30 percent 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 South Africa.”
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 standout performances such as the Free State where growth of close to 30 percent was reported in the major metros, thanks mainly to restrictions on new development.
“Sector wise, the biggest volumes were recorded in the R1-million to R3-million 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 (NCA).
“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 Organisation reporting a 39 percent 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.”
RealNet property group CEO Tjaart Van der Walt reckons the outlook for property in 2008 is still sound with some real investment opportunities for those prepared to do their homework.
“Probably the best potential is to be found in the medium sector of the market (houses from 141 to 220 square metres) and here our assessment highlights areas such as Maitland, Southfield, Ottery and Clovelly in the Cape. This sector showed a real (after inflation) return of 10.4 percent in the third quarter according to ABSA.
“This sector has taken a knock recently with value increases declining to a real (after inflation) rate of 3.4 percent in the third quarter of 2007 according to ABSA, almost certainly due to the effects of the National Credit Act.
“Another driver in this sector is the need for student accommodation and here one thinks of areas such as Hatfield and Arcadia in Pretoria, but also in university centres such as Potchefstroom, Pietermarizburg in KwaZulu-Natal and the City Bowl in Cape Town, close to the University of Cape Town.”
Van der Walt says that in the large sector of the market (221 to 400 square metres) where older properties have traditionally been favoured by families, the latest building price statistics show the cost per square metre gap between old and new homes has narrowed. “That presents a whole new dimension for investors.
“Factors to consider in general terms are security issues, possible land claims, the growing demand for ‘green’ living and infrastructure developments, the most obvious of which is Gautrain but also projects such as La Mercy airport on the KwaZulu-Natal north coast, the Coega port near Port Elizabeth, the new Limpopo power stations and so on.