Global and Local Property Insights (Ballito Mag)

How things have changed over the past six years. It was in January 2008 that the lights went out – literally as Eskom introduced extensive load shedding across our beloved Dolphin Coast area and the financial crisis gripped our economy sending our property market into a tail spin. The arrogance of an inflated asset market evaporated and 2009 represented the low point in the property market cycle. The mini rally of 2010 was short lived as the second half of that year represented a further squeeze. Developers put new projects on hold, banks were nervous and overly cautious and many prospective buyers adopted a watch and see attitude thereby withholding their buying decisions until some type of trend in the market could be determined. Towards the end of 2012 the surge in buying interest began and 2013 represented a very good year with transaction volumes returning to pre-crash levels, even though price escalation remained stubbornly constrained. As Seeff we experienced one record month after another, both locally and nationally. Similar reports were forthcoming from the other main real estate brands around the country. Estate agents had perked up and were starting to even experience stock shortages across certain price brackets for the first time in many years. Developers are back in force and have been buying up land en masse with a view to delivering product over the next five years. Several of our flagship estates along the Dolphin Coast are now experiencing vacant land shortages and buyers are realizing that price escalation is almost certain to follow. The Dolphin Coast property market is in a stable happy place with those professionals serving the industry starting the year with a renewed sense of confidence and positive expectation.

The international property market has similarly experienced a surge in demand. The Knight Frank house price index report provided evidence showing that global house prices had reached a new peak and exceeded its pre-financial crisis high. Average annual price growth across the 53 countries, which make up the index was 4.6%, with 69% of the countries tracked recording a positive price growth. The international property market stars that lead the growth were Dubai, China and Hong Kong with mainstream prices increasing year-on-year by 28.5%, 21,6% and 16.1% respectively. Impressive growth in house prices was also reported by other emerging markets such as Taiwan (15.4%), Indonesia (13.5%), Turkey (12.5%) and Brazil (11.9%). South Africa ranked 13^th on this list with attributed house price growth of 8.6%, marginally ahead of Australia which recorded growth of 7.6% and well ahead of New Zealand which was one of the 17 countries on the list that experienced negative growth. Interestingly only three of these 17 laggards, namely New Zealand, South Korea and Japan, are outside of Europe. There are however some pockets of hope in Europe with Germany, Austria, UK, Ireland and Switzerland representing positive house price growth. Ireland’s rebound in house price growth is noteworthy. Ireland ranked fifth in terms of quarterly price growth, with prices rising 4% on average over the three-month period. Less than two years ago prices were falling in Ireland at a rate of 5.4% each quarter. The recovery of the US housing market continues with house prices growing by 11.2% annually. The bottom four positions on the global list were taken up by Cyprus, Greece, Spain and Croatia with prices falling by -5.9%, -9.1%, -12% and -19.7% respectively. What a great time to buy in Spain or Croatia.

For South Africa the improvement in the international property market in general is positive news. The weaker exchange rate of the Rand has made our existing stock of residential properties more attractive to buyers making decisions in dollars, euros or sterling, and we can expect renewed interest from offshore buyers. Foreign buyers from Africa continue to grow and make their presence felt within the market. South Africa represents a more sophisticated market with access to first world amenities to these buyers. Our experience along the Dolphin Coast is that they are buyers of high-end opportunities while the typical European buyers seem to favour the middle range. They still have a perception of political risk attached to an investment in property in South Africa and therefore choose to limit their exposure.

The outlook for 2014 is positive. Two factors support my view. House price growth is starting to accelerate, demand has grown quickly and looks to match or even exceed supply soon. FNB’s published house price index for 2013 shows growth of 6.8% in nominal terms for 2013 on an annual basis, which compared to the 7.1% recorded for 2012. However, when we look at the monthly growth rates, December 2013 showed an 8.7% year-on-year growth rate. This shows acceleration towards the latter part of 2013, which we can expect to continue into 2014. The FNB Valuers Residential Market Strength Index is a wonderful measure of the demand-supply balance in the residential property market. During the past year we have seen a steady and increasing improvement in the demand rating, thereby closing the gap between the two. It is when demand exceeds supply that price escalation will start to become evident. When this happens the protracted buyers market we have become so accustomed to would have ended and the sellers will again start to exert their influence.

(Author: Andreas Wassenaar, published in The Bugle, Feb2014)