Real Estate Investor Magazine South Africa Real Estate Investor Magazine - July 2017 | Page 36

MARKET VIEW
Taking the Plunge
Reasons For Optimism
BY DR ANDREW GOLDING
M
uch like last year, 2017 is proving
to be another year of economic and
political uncertainty - both locally and
internationally. However, despite a protracted period
of subdued economic downturn, the local residential
market remains remarkably resilient – in part because
investors, faced with unusually high levels of financial
market volatility, are increasingly opting for the
stability offered by ‘real’ assets like property.
Notwithstanding this , the ‘junk’ investment rating
by leading world agencies is an unquestionable blow to
the South African economy, hard-pressed consumers –
and national pride. But the effects will probably take a
while to impact noticeably – and may not be too harsh
in the long run if we can get our economic act together.
In any event, the cost of capital is on the rise,
meaning lower investment, little job creation, declining
investment levels and fewer economic activities. In
this context the general effect is a downward pressure
on asset prices, possibly including property. From a
property perspective demand for mortgage loans has
not really faltered. Nor has the fear factor sparked a
rush by bondholders to switch from variable to fixed
mortgage loans rates. Nevertheless, if the economic
outlook worsens the banks will take steps to hedge
their risk exposure.
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JULY 2017 SA Real Estate Investor
The residential property market overall, however,
remains buoyant and continues to outperform other
investment avenues, over both the immediate and long
term. Standard Bank’s latest data shows Western Cape
property leading the field with values 39% above their
trough in 2008-09, with Gauteng not too far behind
with price growth of 35.5% over the same period.
FNB’s latest property barometer shows house prices in
April improving to 5.5% nationally
According to the Pam Golding Residential Property
Index, despite facing a range of economic and political
headwinds, national house price inflation has eased
only marginally – slowing from an average of 4.7% in
2016 to 4.35% during the year to date. Encouragingly,
the major coastal metro housing markets of Cape Town
and Durban continued to outperform the interior
metro markets in early-2017, with growth at 13.4% and
6.7% respectively.
First time homebuyers appear to be sensing the wind
in terms of future economic prospects and continue to
comprise a very high proportion of mortgage bond
applicants – 46% during the first four months of 2017.
This trend is not really surprising given that house
prices continue to rise, albeit at a slightly lower rate
than last year, and expectations are of a possible rate
cut later this year.
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