South Africa and property in 2015

What does the future have in store for us?

2015: Good times ahead in property…

Warning! This is simply a forecast based on an analysis of the evidence at hand not a prophecy. If I could see into the future I would not be typing this post. I’d probably be on my own tropical island sleeping on a big pile of money

Now that we’ve all had enough time to break our New Year’s resolutions lets partake in another tradition: predicting what the year has in store for us.

Things are looking rather drab with slow declines and stagnation prevalent in most sectors. Happily, for someone like me in the property sector, one of the bright spots in the economy will be in property sales and new developments.

It’s good to own land

The growth in property prices and the sustained demand across 2013 and 2014 inspired confidence in the banks and investors and led to several new developments (particularly apartment blocks), upgrades of older blocks and the repurposing of industrial and commercial buildings for residential use. These new units have gone some way to mop up demand from both buyers and renters but supply remains constrained. As such property prices (as well as rental prices) will continue to rise through 2015 as will the numbers of brand new stock being brought onto the market. All this means that 2015 will be another good year to be in the construction industry. It will also be a good year to be an estate agent though competition is increasingly stiff and the more exorbitant commissions will likely decline.

Tip for sellers: There is a shortage of good quality, well priced homes and you have what the agent needs to make money. Don’t be afraid to negotiate a reduction in their commission.

Tip for buyers: Get pre-qualified! Competition remains stiff and you need to know now what you can afford.  A pre-qualification from a reputable mortgage originator also shows the estate agent that you are a serious contender.

Oil to the rescue (for now)

Oil prices are way, way down and set to stay low well into 2015 and this is, generally speaking, good news for struggling economies and consumers the world over: with lower fuel prices the cost of doing business and buying goods will decrease leaving some more change in pockets. Locally it means that the South African Reserve Bank will likely keep the repo-rate stable until late 2015 as inflation decreases (fuel prices have a major impact on inflation) and this means that loans, particularly home loans, will remain affordable for longer. This in turn, taken together with good returns from property, will encourage lenders (the banks) to continue to pump finance in to the market.

Tip for home loan applicants: If you can afford it consider applying for a home loan sooner rather than later. It will be a little bit easier in 2015 to get a home loan (or to get a larger loan at a better rate) but remember that rising prices will impact on the property and/or loan you can afford.

But what will South Africans do with this extra cash? Ideally they should do a little spending and saving and a lot of paying off their debts. But they probably won’t: Short term unsecured lending is at an all-time high and so I can’t help but feel that the relief we feel thanks to the oil price is only postponing the inevitable and dire consequences of both confused, poorly implemented policy and endemic corruption.

Eskom

Everyone is talking about Eskom and with good reason: load shedding is a massive brake on economic growth. It will be interesting to see how the power crisis is solved (if it is) in the months to come. Personally I believe that independent power producers should be encouraged by government to invest in improving generation capacity with a clear mandate and laws governing the sector. We’ll have to wait until after the politicking of Parliament’s opening in February to see what form (if any) solution will take.

In the meantime we are all faced with power-outages which will hopefully come in the form of more business friendly scheduled shut-downs. But whatever form they take it will only serve to delay and hamper the sale and transfer of property as the banks’ home loan departments, conveyancers and the deeds office go offline. Already it takes approximately 3 months for a property to transfer from the seller to the buyer and given the circumstances this time frame can only increase.

Tip for sellers and buyers: Keep the 3 month timeframe in mind when buying or selling. It means you will have to wait 3 months to get your money if you are the seller and a similar amount of time to move in if you are the buyer.

Buy land, they’re not making it anymore…

Every indicator points to the fact that the commodity boom is very much over and the JSE has seen a very volatile start to the year. Not so with property: investments in SA Listed Property fund which tracks the top 20 companies in the Real Estate Investment & Services and Real Estate Investment Trusts Sectors saw returns approaching 30% in 2014. And that’s just the more volatile shares and not good ol’ bricks and mortar! If you’re looking for a local, medium to long term and tangible investment then property is the way to go.

Tip: Even in interesting times such as these property has, historically, been the safest and most lucrative investment.

Greg de Mink

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