What's going on in our property market

Dr Andrew Golding: we still need to continue growing our economy.

There is no doubt that we have seen consolidation in the market with the interest rate hikes of last year taking effect, and in tightening market conditions, we anticipate that residential property price growth will be moderate, ie single digit growth, in line with inflation. In the current market that is experiencing a slowdown in the volume of transactions taking place, sellers will need to adjust their expectations to realistic, market related prices as the market moves away from a sellers' market to one that more equally balances the power between buyer and seller. At the same time, there will be an increase in stock, which creates a buying opportunity.

The current property market is reacting in the same way that other markets, such as the equity market, are reacting to news on a wide variety of fronts, both of a local and global nature - namely with uncertainty. And uncertainty impacts on sentiment. There will be pressure on the second home, non-primary residential market and on leisure products as consumers tighten their belts. In this scenario fractional ownership products are set to benefit, as the 'ticket price' for fractional ownership property is much lower than freehold property making it far more affordable, coupled with the benefits of flexibility of usage and hassle-free maintenance. In line with global trends, we in South Africa are seeing sound growth in the fractional ownership market.

SA still attractive to overseas buyers

With regard to overseas buyers, despite the current uncertainties regarding the political climate, the energy crisis and talk of regulating foreign ownership of property, South Africa remains attractive to overseas buyers - in particular those in England, Europe and other African countries.

Despite the current trading conditions in a highly competitive market, Pam Golding Properties residential sales for the 11 months year to date are still 18 percent up on sales for the previous year. In such a market, the advantages for PGP can best be described as benefiting from a 'flight to quality' as consumers tend to turn to well established, market leading companies with credible reputations, professional, trained agents and major networks. Over the past 30 years, we have experienced a number of downturns in the residential property market and have learnt from the experience. Companies that have not endured challenging times will find the market tough and unforgiving, requiring a whole new set of skills in order to successfully service the requirements of the marketplace.

A threshold

In regard to the Monetary Policy Committee's pending repo rate decision, to be made today (Thursday 31 January, 2008), we sincerely hope that this will remain unchanged and that we have indeed seen the end of the upward cycle and the start of a downward trend. There is a commonly held view that there is a threshold in terms of interest rate hikes that the market can stand, and should interest rates increase yet again it seems they would breach that threshold - with extremely negative impacts in many respects. Should the decision be to implement a further repo rate increase, we hope this will be the very last. Looking further ahead, we anticipate that interest rates will remain at current levels for most of the year, commencing on a downward trend towards the end of 2008.

From a political perspective, PGP is taking a wait and see approach rather than speculating on what might happen. We prefer to analyse and interpret the facts as they emerge in regard to the changing political scenario. It is true that the current energy crisis, coupled with global economic issues and the factors mentioned above see us faced with a challenging year ahead that will require sound management and astute thinking.

Yet despite the tightening market, the macroeconomic fundamentals in terms of the housing market remain sound, and we believe opportunities will arise in all areas of the market. There is a normal supply-and-demand situation, with a significant shortage of supply resulting from a historic, pent-up demand for homes (mainly in the lower to middle sectors of the market) which underpins the housing market both from a local and global perspective. We certainly have confidence in the continued resilience of the South African economy - which is forecast to grow at an average of 5% over the next five years - and in the property market. The reality is that we still need to continue growing our economy in order to meet the demands of a rapidly growing new market and combat high levels of unemployment.

For further information contact Dr Andrew Golding on 021 7101700.