Will 2009 be better for the Local Property Market?
2009-01-07
An article on Property24 offers an overview of 2008 and dares to make a few predictions about 2009. Unfortunately the consensus is that it will continue to be bleak year on the global and local economic front.
In fact, Rael Levitt, the chief executive of Alliance Group who was quoted in the article, says that if any South Africans are under the illusion that times will quickly get better in 2009, “they are not taking cognisance of global events.”
The Alliance Group has itself experienced a turbulent 2008 where volumes grew dramatically off various distressed markets, particularly the residential property market which went into free fall from the middle of the year. According to Levitt the local distressed debt environment started off at the retail level with a sharp increase in car repossessions, house repossessions and a surge in personal insolvencies.
"By the end of the year we saw liquidations following and this December there have been more liquidations of companies than since the turbulent mid-1990's. What we are seeing in South Africa is six months behind the USA, UK and Europe where distress is moving from the retail environment into businesses."
According to the Property24 article, the residential property markets in South Africa have also been following the global downturn with distress across the board and growing. There has been a flood of residential stock hitting the market with both forced and non-forced sellers values dropping across the board. By the third quarter the banks began to tighten up on new home loan financing and despite the recent 50 point interest rate drop, negative equity in house values has grown and there is a good chance that by mid 2009, 5% of all South African homeowners will be in a negative equity situation.
"By the end of this year, mortgage stress (less than 2 months in arrears) has grown to over 100,000 and severe mortgage stress (being 4 months in arrears) has also spiked to over 30,000 home owners". There is no indication that this will slow down into 2009 unless the Reserve Bank slashes interest rates by more than 4% in the new year.
Despite the fact that the market has been favourable for buyers, there has been cautious buying in line with the economic slowdown and "distress although small, is growing". Many sellers, including property funds, prefer a "hold position" than discounting their prices while there have been large drops in vacant commercial land prices.
The article predicts that building cost inflation will cause upward pressure on prices and rentals. With rentals increasing as a result of supply constraints, plus lower interest rates, many opportunistic buyers will emerge.
Levitt believes that the 2010 Soccer World Cup will improve sentiment in certain sectors towards the end of 2009, but all in all “next year will be a year for living dangerously”.
However, according to another article citing Homenet’s CEO, Martin Shultheiss, the worst of the economic and property crisis is over and tough times are still in the offing and the property market will remain "jittery" for at least another year to 18 months.
According to Martin, factors which will continue to make for difficult conditions include decreased disposable income, strict bank lending criteria, unstable global economic conditions, high debt ratios and socio-political insecurity. "Bank risk appetite has decreased considerably as home loans become less profitable and riskier and house prices will continue to move downwards and in some instances fall further.”