The latest Standard Bank residential property gauge confirms that the South African house market continues to feel the effects of the economic slowdown, says Tony Clarke, MD of Rawson Properties - but, he adds, this means that right now those with resources or the ability to borrow are able to pick exceptionally good buys at very reasonable prices and should be increasing their portfolios.
'The Standard Bank figures for February this year,' says Clarke, 'indicate that although the middle and upper bracket housing saw no real decline in values, the lower bracket category did see a slight decline when compared to February 2007. This means that the median house price growth in South Africa has slowed year-on-year to 3,25%, the lowest since October 2000'
The review, says Clarke, ascribes the slowdown primarily to the higher interest rates and the higher cost of household and general debt as well as to the very marked slowdown in salary increases which, by Rawson Properties estimates, this year rose only 7% to 8%, i.e. below the current 9% inflation rate.
Clarke says that the general tightening up of the economy could lead to less committed homeowners opting out of property ownership in favour of maintaining a good lifestyle. It could also, he says, lead to an increase in the number of tenants defaulting on their monthly payments. Both situations, says Clarke, are regrettable and call for a more austere, less spendthrift approach.
'If you are finding your monthly bond repayments difficult, we at Rawson Properties urge you, above all, not to sell now. Bite the bullet, see your bank to renegotiate your repayments temporarily and cut back wherever you can on other expenses. It is essential to hold onto your property until better times allow you to make a better profit.
'If you are a landlord, particularly one with a good tenant, help him or her over this difficult period by foregoing or cutting back the annual rent increases - try only to cover the extra 4% on your bond interest rates '“ do not risk loosing a good tenant.
'On the other hand, if you have already had ongoing trouble with your tenant, the best solution could now be to contact the Rental Housing Tribunal. They will provide a free dispute service to tenants and landlords They can be reached on 0860 106166'
In the current scenario, says Clarke, the wisdom and benefits of employing a professional rental agent, such as those operating throughout the Rawson group, have become daily more apparent because, he says, such people have 'experience and understand how to nurse a tenant through these difficult times and still get paid'.
The exceptionally favourable conditions in the property market over the last five years, says Clarke, led to less mature investors building up unreasonable short term return expectations.
'This,' he says, 'is a complete break with the past. Traditionally property has always been seen as a long term, safe investment. We are now back to this situation, but anyone familiar with the historic property patterns will take comfort from the fact that over the last 20 years the annual price growth has been between 15% and 18%, which most of us would regard as a satisfactory return by any standards. That is the sort of return we can now expect for the next five years'
Those holding onto existing portfolios or buying property now, says Clarke, can expect an interest rate rise of a further 0,5% shortly, due to the high current inflation rate.
Thereafter, however, he says, most of the predictions are that the Reserve Bank will be able to offer relief by stabilising rates and by possibly introducing a minimal reduction by the end of this year.
'The Standard Bank forecast for the inflation rate in 2009 is, in fact, 4,9%,' says Clarke, 'and 4,7% for 2010. If achieved, this will definitely make it possible to bring interest rates down even further'
He himself, says Clarke, has held onto his property portfolio and he '˜sincerely advises others to do the same, even if this now calls for tightening of their economic belts.
'Now is very definitely not the time to disinvest in the portfolio. The shrewder investors with resources are there waiting to snap up the bargains - but, at the risk of repeating myself, I must re-emphasise that homeowners should do all they can not to sell. Well resourced property investors, on the other hand, should now, as indicated, be buying steadily in the expectation of steady long-term return figures'
