Prices for residential property have reached a ‘tipping point’ where good returns are once more possible, particularly at the lower to middle end of the market, suggesting that property should seriously be placed on ‘investment watch’ once more.
Gerhard Kotzé, chief executive of the ERA South Africa property group, says that’s the message to be derived from the latest statistics.
“Fundamentally, it’s about low inflation, low interest rates and rising house prices. All the numbers are working in favour of the homebuyer/ investor right now. This is not to suggest that we all dash out and buy property willy-nilly. Indeed it may not even be a question of buying an investment property, but merely an issue of being able to buy property with confidence.”
According to the Absa house price index, he says, home values increased on average by a nominal (before inflation) rate of 14,8% year-on-year in June – and small homes performed particularly well, growing in value by an impressive 33,6% yoy in June (although this is admittedly off a low base).
“On the other hand inflation, according to the latest Stats SA figures, is running at 4,6% yoy. In other words the gap between inflation and property price growth has widened.
“Moreover, this picture is accompanied by an improvement in rental market fundamentals in 2010 according to the FNB Property Barometer, a scenario which the bank describes as mildly better news for buy-to-let buyers who use credit.”
Underpinning the generally more positive trend in prices and demand, says Kotzé, is the fact that the residential building sector is still very weak.
“The supply of new housing stock to the market has dwindled to a trickle and it will take some time before the momentum is recaptured, suggesting that demand/supply balances will place further pressure on housing prices in future.
“Having said that, though, economists are now suggesting that property price growth may have peaked for the moment, inflation is likely to pick up towards the end of the year and interest rates may start to rise again in 2011. Investors should thus proceed with care.”
