The commonly held view that interest rates are a prime factor influencing the sale of residential property in South Africa is very far from true, says Wayne Albutt, Regional Sales Manager for the Rawson Property Group in the Western Cape.
“The more one studies the property market,” said Albutt, “the more it becomes clear that what drives the market is sentiment. It is this that leads people to decide whether to buy – and at the moment sentiment in the South African residential sector is very bullish indeed.”
This, he said, is evidenced by the fact that most estate agents in the Western Cape saw sales rise significantly in 2013 – with the bulk of the increases being in the second half of that year – which, said Albutt, augers well for sales in 2014. The Rawson Property Group’s Western Cape franchises, for the record, saw sales rise by 43% in 2013 and, although this was undoubtedly a phenomenal achievement, many other estate agencies have reported sales increases of 20% plus.
Asked to explain what it is that is creating this very bullish sentiment, Albutt said that in his view it emanates from the banks, whose sophisticated media activity is designed to improve the amount of ‘safe’ money being loaned on bonds.
“By safe,” he said, “I mean bonds on which the deposits asked are large – often in the region of 20%.”
Those resisting the bullish trend and continuing to rent, said Albutt, often do so on the grounds that they cannot afford to buy. While this may be true in view of the big deposits and the many expensive extra costs that accompany a purchase, in many cases an ego element comes into play here: the buyer prefers the status of a smarter rented property to that of a more humble home.
Bullish conditions, added Albutt, can be dangerous, especially if, as seems likely now, they continue for a good long time, i.e. at least until the end of 2014, because a new influx of enthusiastic buyers, he said, as in previous bullish eras, may find themselves unable to cope with interest rates if and when they arise.
“One has to recognise,” he said, “that bonds are repayable over a very long period of time (often 20 to 30 years) and during that period interest rates, it can be predicted with absolute confidence, will fluctuate as they have always done in the past. While we in the real estate sector welcome the fact that we are likely, this year, to see at least a further 33% increase on 2013 sales, we must also recognise that if buyers have not budgeted for significant interest rate increases down the line, some of the them could once again find themselves in trouble. This time around the banks have insisted on large deposits and will therefore be largely protected if they have to repossess, but the buyers could suffer.”