Residential property market on the rise globally

Countries across the world are now anticipating a rise in residential prices during 2010 – some more than others.

In the UK, around 81% of people expect house prices to rise during the coming six months, predicting average increases of 5,4%, according to a UK property website. In the US and Australia, similar expectations have been reported, although it has been noted that they anticipate the recovery to be slow and tough. In Australia, analysts and company chief executives are looking forward to improved economic conditions in 2010 – especially in the commercial property market.

But what about the southern tip of Africa – do we share similar expectations for our residential real estate market? Last year it became clear that our strict credit act was a major contributor to the fact that we were not as badly affected as the rest of the world. According to Rael Levitt, CEO of Alliance Group: “Last year was a tale of two halves, with the first month showing a plunge in traded asset values and a historic surge in home loan distress. The second half of the year started to show significant improvement in average asset values, with a palpable bounce in the last quarter of 2009.”

Moving forward, it seems the mist of uncertainty is slowly lifting as experts across the country are predicting an increase in South African residential property prices. Property analysts and economists are predicting two major trends for the domestic residential property market in 2010. Firstly, the acceleration of house price inflation from the bottoming out of the market as we start heading out of the recession, and the second factor, the 2010 FIFA Soccer World Cup.

Mid 2009, the residential market saw a bottoming out of recessive house prices, followed by a somewhat more positive second half of the year. Although Alliance Group still saw a large number of distressed properties hitting its auction floors, numbers were considerably lower than the record-breaking peak experienced in the first quarter of 2009.  When asked about the effect that the interest rate cuts had on the distressed segment, Levitt responds: “For many distressed homeowners, the interest rate drops in 2009 were too little too late.”

Despite a minimal effect on immediate relief, the rate-cut cycle did contribute largely to the recovery now seen in the market, albeit a slow and hard slog.  Jacques du Toit, sectoral analyst: Secured Lending at Absa Retail Bank, predicts the market to follow through on the recovery seen in the last half of 2009 and expects house prices to grow by between 6% and 7% in 2010. Levitt adds: “We should see an uptick in median prices across the board.” Some market segments will, however, benefit from greater price increases than others, says Levitt: “Up-market suburbs are predicted to be the recipient of higher property price inflation.”

Despite positive sentiment and a reasonable market forecast, sensible lending and tight credit control should still be top of mind. Erwin Rode, CEO of Rode & Associates, warns that the recovery in nominal house prices does not guarantee an immediate recovery in real house prices. Domestic households are still highly indebted and as a country, South Africa still faces a number of very real challenges.

The effect of the 2010 FIFA World Cup on the domestic economy has increased government spending on infrastructure for the tournament and as such, has acted as a buffer, limiting the impact of the global recession. However, it has not only ensured increased spending from entities within our own borders, but it has also put South Africa on the map globally, showcasing its potential and increasing foreign investment sentiment and spending.

Levitt notes: “A sweet spot may emerge for estate agents and auctioneers if buyers are buoyed by positive World Cup sentiment, and if sellers who are mildly distressed will accept realistic prices. The outlook is far better than 2009, which saw many people tightening their belts to deal with the weak economy and growing unemployment. In 2010 individuals will start spending more as the stock market continues to rally and the economic outlook improves.” This sentiment is echoed by Du Toit, who forecasts a gradual increase in activity and transaction volumes in the residential property market.

South Africa is a few months away from welcoming a large contingent of World Cup supporters to its shores, the nation is united by soccer fever, its economy is heading out of recession, politically it is tackling challenges, and it is ready to showcase the biggest sports spectacle in the world. There is no doubt that 2010 is a year unlike any other for South Africa and a milestone for its people.