SA Property - A Buyers Market for Offshore Purchasers (The Bugle)

For estate agents the first five months of 2013 has been a busy period. Sales volumes are up although pricing on the whole is down for many of the transactions. This has been a delight for buyers, but an adjustment in expectations for many sellers. The outlook for the remainder of this year, as expressed by most economists, is that consumers should proceed with caution. The recently released FNB House Price Index figures show that house prices continued their marginal escalation with May showing a year-on-year growth of 5,8% up from 5,4% in April. After adjusting for CPI inflation, real house prices declined slightly by 0,4%. It is interesting to view this same house price index over a ten-year period from 2003. We then see that house prices are up 49,8% in real terms or 151,9% in nominal terms. This indicates that the price effects of the residential demand boom experienced over the last decade have not worn off even after taking into account the significant downward correction experienced in 2007/2008. 

The FNB Valuer’s Market Strength Index is one of those statistics you always want to keep an eye on as it gives you an indication of the relative levels of demand and supply within the overall market. Although this is indicating that supply levels have been contracting and demand levels growing marginally, the overall demand rating remains at 46,33 which is well below the key 50 level mark at which demand and supply are equal. Until demand exceeds supply, sellers will not experience the escalation in home prices they became used to during the boom years. 

For anybody who has been watching the performance of the exchange rate of the Rand this year, the rapid weakening of our currency has been a little concerning. I tend to think of the exchange rate of the Rand as our country’s share price. When confidence is up and international investors favour us, money floods into the equity and bond markets driving up the value of our currency in terms of Dollars, Euros or Sterling. May 2011 does not seem that long ago and the Rand : US Dollar exchange rate averaged R6,57 at that time. By May 2012 the rate was R7,89 per US Dollar. And now by June 2013 we are at R10,07 per US Dollar. That is a 53% weakening over the two year period. Our residential property just got a whole lot cheaper for a purchaser making their decisions in US Dollar value terms. For South Africans based outside the country who have been considering buying a residential property in South Africa, this is probably one of the best times you will be presented with to buy. It will be interesting to see if the current weakness of the Rand does translate into increased foreign buying of our local properties during the course of this year. It should.

(Author: Andreas Wassenaar, published in The Bugle, 12 June 2013)