The ongoing media coverage given to the European and US economic problems, particularly the strong likelihood of a double dip recession in the US and an eventual default by Greece and possibly other European countries, are creating a hesitancy and holdback reaction amongst South African property investors that, says Bill Rawson, Chairman of Rawson Properties, is largely unjustified.
'Time and again,' said Rawson, 'people ask me how they should be reacting now, the assumption being that the news we hear nightly on BBC and CNN business programmes about the world economic problems must inevitably affect us. Obviously this is true, but the degree to which we are likely to be affected is, I believe, being exaggerated'
European stock markets, said Rawson, have fallen by over 30% of their late 2008/early 2009 peaks. South Africas JSE Securities Exchange is still trading at only 10% to 12% off its previous highs.
'Even that, however, is largely irrelevant. We have to appreciate that the stock investors, responsible for massive corporate balance sheets, are usually operating on a daily basis. They respond quickly to even small falls in share values, thereby always adding to and exacerbating the markets volatility.
'The property investor, by contrast, generally takes a long term view and those prepared to do so should, I believe, by buying right now'
Tracing the background to the current situation in South Africa, Rawson said that in the last few years South African residential property lost up to 50% of its value. A major reason for this, he said, was the banks flooding the market with repossessed stock, the auctions or sale of which resulted in prices which were '˜almost ridiculously way off their '˜true value, i.e. the price they will achieve once the market normalizes.
'What todays pessimists in the property market fail to appreciate,' said Rawson, 'is that the banks have now by and large written off their unsold stock and outstanding debts and are steadily returning to a more positive outlook. Not only has the flow of repossessed property to the market now slowed noticeably but the banks are once again open to mortgage lending, albeit on the tighter more responsible 1980/1990 conditions. A gradual recovery is, therefore, definitely on the cards'
At the moment, said Rawson, market values are set to rise because of the huge shortage of stock, the higher rents being obtained and the strong likelihood that inflation, pushed by excessive electricity costs, increases in wages, transport costs and food, will hit 10% within the next year.
Asked if he is applying to himself the advice he has given here to others, Rawson responded, '˜yes, very definitely.
He would, he said, be adding 30% to his property portfolio in the coming half year. The main target will be commercial property (office and retail units), but at least 35% of the total will be in residential property. He is not, he said, focusing on the basement bargains where the risk attached can often be high, but is still able to buy at rates that in his view are '˜truly advantageous.
In the residential sector, he said, it is a wise policy to buy '˜where the fish are biting. At present that is in the sub-R1 million market.
'At the moment,' said Rawson, 'upper bracket housing has proportionally lost more in value than other sectors and is recovering slower. The problem here is enhanced by the occasional buy that goes through at above realistic prices, usually because the buyer likes the house so much. This leads others in the precinct to think that they too can get good prices. This thinking is, of course, unreasonable in the market that will take another 18 to 24 months to normalise'
Agreeing with statements already made by Dr Andrew Golding, Samuel Seeff and other leaders in the residential property marketing sector, Rawson said that if they are serious about selling, owners of upper middle and upper bracket property have to become more realistic. Nevertheless, he said, the overall outlook for South African property is, as outlined above, positive and investors should now be buying.
For further information contact Bill Rawson on 021 658 7100 or email bill@rawsonproperties.com.
