Could Be Entering Best Time to Buy Property in SA

Sentiment Seems to be Improving in SA

No doubt, there are many South African consumers who breathed a significant sigh of relief at the Reserve Bank’s recent decision to put interest rates on hold. According to Rael Levitt, chief executive of the Alliance Group, both investors and property owners had realized the country was most likely at the pinnacle of the interest rate cycle.

Levitt believes that investor sentiment in the residential and commercial property markets in particular has improved substantially over the last two weeks. “Trading on our auction floors in August throughout the country has seen the strongest investor appetite in over 12 months and our success rates and bidding activity has literally changed overnight,” he explains.

Prior to the South African Reserve Bank’s (SARB) decision to place interest rates on hold, investors were beginning to believe the property market was heading for a recession and with the added worries of political insecurity, crime, xenophobic violence, the Eskom crisis, as well as food and fuel inflation, public sentiment literally took a nosedive, says Levitt.

“South Africans are naturally resilient investors, but consumer and business confidence took a big knock in the first half of the year,” Levitt adds. He goes on to say that the commercial property market tracked interest rates and while there had been “insignificant pockets” of financial distress in the sector, it has remained relatively resilient, despite the continued weakening of business confidence.

There are local investors who experienced downturns in the 1990s and realized that the current downtrend was nowhere near the slump of the previous period, when the investors tended to shy away from property investment. “In fact, most of our investors now realize that if interest rate levels are peaking, this is the time when they should be investing in a market which is offering great value,” says Levitt.

Levitt argues that as South African investors get used to the neutral stance taken by the SARB, they will realize that there is a small window of opportunity for fixed property investment, which has all the necessary fundamentals for medium and long-term growth. However, the economy is not yet out of the dark and the residential property market has the extra burden of heavy borrowing, which comes at a significantly high cost.

“We still see further price deceleration into 2009 and increased mortgage stress, which always has a lag effect after interest rates have spiked,” warns Levitt. He adds that there are a number of residential property buyers and investors, who have deep pockets and are literally snapping up residential properties in the suburbs across the country, at prices that will seem bargain basement in two years time.

The gist of the matter seems to be that many buyers and investors have realized that the next 12 months will be the best opportunity in 20 years to buy residential property.

The information in this article is courtesy of Sapa (“Rate call to slowly trickle through market”, IOL, 1 September 2008).

Buy or sell property in False Bay, Scarborough or Noordhoek in South Africa.