By Dr Andrew Golding, CE of the Pam Golding Property group
Pressures continue to bear down on the residential property market, resulting in changes to its dynamics in spite of the slow but steady recovery we are currently experiencing. The market continues its steady upward climb. Housing sales by the PGP group continue to increase with monthly sales averaging more than R1 billion. Moreover, we are experiencing pockets of high activity and, in certain areas, shortages of stock for sale.
The Western Cape leads the pack, according to a new survey by First National Bank. The province has the comparative advantage over the other major provinces, in terms of the lowest percentage of repeat buyers buying in other provinces (ie outflows) and the highest inward migration of repeat buyers from other provinces. The survey comments: “A good combination of lifestyles appears to be the winning recipe in attracting both wealth and skills to the province in abundant quantities.”
The economy has, of course, been in a lengthy period of stable interest rates. The same, alas, cannot be said of our currency exchange rates. This weakening of the rand and its impact on South Africa’s inflation , now hovering near the SA Reserve Bank’s upper target limit of 6 %, will in turn influence the Bank’s future interest rate policy; down, to stimulate our lagging economic growth, or up, to protect the rand and short-term investment flows.
There are, of course, less esoteric pressures. Mortgage charges may be historically low but at an average of 9.5% (according to bank sources) bond repayments are no walk in the park for the average wage earner. Furthermore, bank lending criteria remain tight and required deposits at an average of 16% of purchase price are a barrier, particularly to young buyers. Yet the market overall is indeed looking brighter.
Perhaps the severest pressures facing consumers are those which add up to the day-to-day cost of living – and thus running a home. Electricity and household gas charges have gone through the roof with no amelioration in sight. Other utilities, such as municipal rates and taxes, continue their upward spiral. Food prices too keep rising, even on very basic commodities.
One overall result has been a quite dramatic increase in “downscaling” – the selling of relatively spacious family homes – the upkeep of which has ceased to make economic sense. Even more telling is the growing importance of “proximity” – to relocate or to purchase, especially for first-time buyers, near work, schools, and leisure activities. Constantly rising fuel prices take their toll. This is not purely a matter of cost, but also of time.
Another dynamic is that people generally are living longer. As a result we are faced with a lack of suitable retirement accommodation at reasonable cost. Our ageing population is underserviced. There is also a real need for middle market homes. This is partly due to the hiatus, caused by the market slump, in the building of new houses and apartments. The development market has been stalled for a number of years and there is little new stock. Yet the population continues to grow. This, however, is positive for house prices in the medium to long term.
The real estate business has also changed. Not only has the market shrunk but there are fewer agencies and agents. Some estimates put the outflow at the peak of the slump in 2007 at some 50%.
There is also a cloud hanging over the possible recovery of the industry. Will those experienced agents who left return? Will newcomers be willing to endure the lengthy training process now required to gain accreditation? Is transformation achievable in an industry where earnings are commission-based?
In the New Year, even more demanding qualifications will be required to work as an estate agent. As a result, some agents may feel that the game is no longer worth the candle; will there be a natural inflow to replace them? On the upside, these can but only improve the overall professionalism of the industry.
These are turbulent but exciting times.