In a difficult post-debt crisis environment, in which the threat of a double-dip recession still remains a very real possibility, the South African property market has continued to show slow but meaningful growth. Key indicators suggest that confidence is gradually returning to the market and that a slow road to recovery is imminent.
Korbitec’s Attorney Activity Index, which analyses the number of property instructions occurring between buyers, sellers, banks and attorneys, serves as one of the country’s best market forecasting tools. Korbitec services 80% of South Africa’s attorney offices with its customised software solutions and is thus able to offer an accurate snapshot of the current property transaction pipeline.
“Since the market low point in August 2009, we have seen a small but steady growth in property transaction volumes,” says Dawie Verryne, CEO of Korbitec. “Volumes are now 15 – 20% higher than they were during that period and six of the first nine months of 2011 have recorded higher transaction levels than in the equivalent period last year.”
Whilst the growth rate has been relatively slow, it has been definitive with no real indication of any significant decline and with many of the country’s banks having relaxed their mortgage lending criteria, confidence is gradually starting to return.
“The strength of the market will ultimately be dictated by South Africa’s banking institutions, whose increased confidence is likely to cause a knock-on effect for consumers,” continues Verryne. “Many of the banks have relaxed their mortgage lending criteria this year and are allocating increased budget to marketing home loan and mortgage offerings, which serves as a very encouraging sign.”
However, according to Verryne, much of the banks’ focus has been on the low-income and entry-level market, which remains buoyant and looks likely to be the sector that ignites the overall market’s recovery. “Whilst the buy-to-let and luxury home market has shown no signs of improvement over the past year, the banking sector’s increased willingness to offer loans to first-time home buyers has seen a transactional volume upsurge of over 30%,” explains Verryne. “Higher pricing and control over impairment risk has resulted in banks’ home loan departments slowly returning to a state of profitability, something which is likely to imbue the sector with a sense of increased assurance.”
Whilst the property market remains fairly stagnant, significant new buyer trends have begun to emerge with a number of prospective homeowners finding creative ways to put themselves on the property ladder.
“Property has traditionally been regarded as an investment made by married couples or high impact investors, but we’ve started to see an increasing number of property purchases being made by multiple buyers,” explains Verryne. “Debt issues and strict lending criteria have made investments such as property largely inaccessible for individuals and the fairly steady property price has resulted in more buyers pooling funds in order to become homeowners.”
South African property prices have increased by 5 – 7% over the past year, a slightly misleading figure that in fact represents very little growth in real terms. “Taking inflation rates into account, the rise in property price equates to somewhere between 0 and 2%,” says Verryne. “This represents poor returns for investors, but it’s encouraging to note that, unlike in some EU countries and the USA, we’ve seen no sign of a price decline.”
Whilst threats of an interest rate hike in mid-2012 have some analysts predicting a further setback for the market, Verryne believes that this is unlikely to derail the sector’s increasingly steady revival.
“Interest rate hikes do present some concern but, provided that inflation remains under control, we’re unlikely to see any significant hike before 2013,” says Verryne. “Market fluctuations are of course a reality, but based on the property sector’s performance over the past year, it’s probable that we’ll see a steady, incremental recovery, with the market likely to return to the peak levels within the next 3 to 4 years.”