Those sceptics who have repeatedly said that South African residential property has lost its lustre as an investment class have been conclusively proved wrong by the latest figures, says Sean McCauley, Executive Director of Rawson Properties.
Quoting statistics from the latest FNB Property Barometer, the Financial Mail, the UK’s Knight Frank global house price index and Stats SA, McCauley said that in May, year-on-year growth in South African house prices reached a high of 9% (i.e. 2, 3% above cost price inflation).
“There have been analysts,” he said, “who predicted that we would not see this sort of price increase for at least another nine to 12 months. How wrong they have now been proved.”
It is significant, added McCauley, that average house prices in South Africa have now risen to R876, 000 (up 9% on the R804, 000 average and 19% up on the 2009 average price of R735, 000)
“To achieve almost 20% growth in three years when much of the world is in recession,” said McCauley, “is remarkable, especially when one takes into account that in 26 countries worldwide, house prices have actually declined over the last year. In Ireland, for example, the year-on-year drop in property prices has now been calculated to have been 16%.”
The latest GDP figures, added McCauley, indicate clearly that, as he predicted earlier this year, South African residential property is more than holding its own as an asset class. The star in the first quarter of this year was the manufacturing sector, with a real annualized growth rate of 7.7%. But the finance and real estate services sector has ranked second with a growth rate of 4, 1%. (Mining declined 16, 8% and vehicle sales units dropped from 48,000 in March to 35,000 in April.)
Stressing yet again that property has to be seen as a long term investment, McCauley pointed to the house price rise since 2000. This, he said, is a staggering 235% in nominal terms and 70% in real terms.
The listed property funds have also performed exceptionally well, with the JSE’s R160bn real estate sector still being SA’s most profitable investment class over 12 months. The sector achieved a total return (income and capital growth) of 21, 75% for the year to February 29th – more than double the 9, 63% earned by investors who placed their bets on general equities.
“It would be very hard to find any asset class that has performed better than property since 2000,” he said.
Asked if he sees the current house price growth as sustainable, McCauley said that, although it may slow a little, slightly easier bank credit and huge demand, especially at the lower income levels, should keep prices rising by at least 7% year-on-year.
