Reviewing, forecasting property trends: Part 1
Over the past 10 years, the South African housing market has delivered an average annual return of almost 23%, surpassing equity returns of just over 17% over 10 years. In comparison, bonds returned a little over 10% while the return on cash was 9%. A comparison (by Coronation Fund Managers) shows global equity at just 2.3% and global bonds at 5.7% over the same period. In addition, while the return outlook for local property over the next decade is likely to be less than that of the past 10 years, returns on local equity and bonds are forecast to drop.
International market
Looking at property markets abroad, the housing market in the UK returned an average growth rate of around eight% over the past 12 months. However, demonstrating that, just like in our South African market, there are pockets of excellence which outshine the rest of the market, the prime London market has streaked ahead of the rest of the country, showing returns of nearly 30% over the past three years - one of the best global performers, if not the best.
The US housing market is still under duress, showing an annual average drop of 5.9%, while Ireland is in an even more critical state, with house prices falling 12.9% over the past year. Australia is also facing challenges, although the prime Sydney market remains strong. Apart from some notable exceptions, global residential housing performance is still struggling along generally, amid renewed global economic recessionary concerns and particularly off the back of recent Euro concerns.
South African housing market returning
All in all the South African housing market has not fared badly - prices have probably dropped a total of 15% since the peak of the market and volumes are slowly but surely returning since 50% of the existing market disappeared when the market crashed (from a volume perspective) in 2007.
Today sentiment has improved; there is a growing acceptance among sellers for the need to price properties realistically in line with current market conditions, and buyers are continuing to place their confidence in solid, tangible real estate as a sound investment. There is also a pent-up demand among potential and aspiring home buyers, exacerbated by the continued restricted access to finance or credit. There is even an uptick in demand and consequently sales at the top end of the market in the R20 million and R30 million upwards price range.
From a group perspective, we have has seen a steady increase in show day attendance and enquiries and, over the past 12 months have achieved an increase in sales volumes or units of almost 8%, representing an increase in sales turnover of 13.7% or R9.64 billion last year to R10.96 billion this year.
The group has seen a significant increase at the top end of the market, reflected by an increase of 40% in units sold priced above R6 million, while units from R3 million to R6 million have increased by 21%, and units priced from R1.5 million to R3 million are up by 16%. However, sales to international buyers remained low at 2.7% of total units sold, with the bulk of these buyers from the UK, Germany, Namibia, Zimbabwe, Ghana, USA, China, Belgium and Switzerland. We continue to see increasing demand from buyers in other African countries such as Ghana, Nigeria, Zambia and Uganda, as well as other BRICS (Brazil, Russia, India, China, South Africa) countries such as China and India.
Developers re-enter field
Developers continue to show a growing appetite to re-enter the property market. Currently there is also a strong demand for modern accommodation particularly in the R900 000 to R1.6 million price range, which presents an opportunity for developers with vision. Cash buyers remain evident in the market and, coupled with those with access to credit, are able to select from a wide range of stock, with good buying opportunities available and presenting the potential for meaningful capital returns in the future. Some buyers are capitalising on the current scenario in order to plan by downscaling from a large, high-maintenance property to a more manageable yet equally high quality, high-end primary residence, while simultaneously acquiring a second, highly 'lettable' property in a high-demand area as a sound investment for retirement years.
Other trends which we believe will play an ever-increasing role in the marketplace are locations with access to good schools and educational facilities; areas with good infrastructure, roads and requiring less travel time or distance to the workplace; and a migration to locations which offer a better quality lifestyle and secure environment. There is also growing evidence of buyers seeking to reside in communities among like-minded people who share common lifestyle interests - eg within a family-oriented community, lifestyle or equestrian estate. While the Gautrain and improved Bus Rapid Transit transport systems are impacting positively on the demand for homes in accessible areas, the proposed toll roads are expected to add to the consumer burden in terms of costs and will further result in a desire to reduce travel and live close to the workplace.