Reviewing, forecasting property trends: Part 3

International Sales

The sale of prime real estate in the Indian Ocean Islands continues to highlight the global appeal of an idyllic, tropical lifestyle - particularly for South Africans. Since inception, at the now established Eden Island marina development in Seychelles, the group's International Division has concluded over US $300 m in sales.

South African buyers purchased approximately 40% of these, with around 30% acquired by Eastern European buyers from Czechoslovakia, Ukraine and Russia. Most are purchasing for the lifestyle and there are very few units are made available for resale. However, those which have been resold have achieved capital appreciation in the region of 30% on the original purchase price. Indicative of the high usage of homes among owners, only 25% of buyers to date have opted to place their units in the rental pool, where rental yields average at 8% per annum.

Key contributors towards the success of this development is the perceived value on offer - most of the infrastructure has been completed and paid for, so the developer is able to hold prices at very competitive levels. Coupled with this, the development is far advanced with clubhouse, communal swimming pools, private beaches, deli and tennis court all completed and operational, which provides potential buyers with a sense of security.

In Mauritius, from an overall market perspective, general sales are split approximately 50:50 between South Africa and Europe. Residency on the island also provides high appeal for South African buyers.

As far as the UK is concerned, the group continues to market prime located London property to South African buyers, mainly from Johannesburg and Cape Town. The areas favoured most by local purchasers are in South West London - in suburbs such as Putney, Wimbledon, Chiswick, Wandsworth and Richmond. With rental yields of between 5-6%, almost all sales are to those buying for an investment and Rand hedge.

Hotel Market

As far as the hotel market in South Africa is concerned, the group reports that this continues to compare favourably with international hotel markets. South Africa has very few distressed hotel situations when compared with other parts of the world. Traditional overseas markets have reflected no growth in international tourist arrivals and in most case, these have declined as a direct result of prevailing global economic conditions. In contrast, it is anticipated that the improvement in growth of global travel to South Africa will be substantially driven by the exploration of new markets, with the BRICS relationship proving to be critical over the long term.

In addition, international and regional hotel operators who have a presence in gateway cities in South Africa will find it much easier to expand into Southern and Western African countries. There neighbouring states' hotels that offer an opportunity that with a good refurbishment, strong global brand and a sound hotel operator, have the potential to operate well.

Concerning the hotel sector in general, we are optimistic of seeing early signs of recovery and over the past month have received six firm engagements for feasibility studies for new hotel projects in South Africa.

As for the lodges & guesthouses division, over the past year we have concluded steady sales of such establishments in the order of one transaction per month at an average selling price of R10 million, with approximately 75% acquired by buyers mainly from Holland, Germany and France who are relocating here.

Looking ahead

Looking ahead at 2012, by this time next year at the very latest, it is hoped that estate agents across the country will have reorganised themselves into two separate organisations, one representing a labour component or employee component (the former Institute of Estate Agents), and the second representing business owners and principals (the so-called business component) REBOSA. More important however is that these two organisations will be able to represent in a fully inclusive way, the constituencies that they are designed to represent. In this way the industry will be able to be in control of its own destiny and to speak with one unified voice and will be able to interact meaningfully and credibly with all the stakeholders, both government and non-governmental.

Transformation

In regard to inclusivity, the challenge of transformation within the residential real estate industry is certainly one of our greatest challenges. The clock is now firmly ticking with the imminent advent of the Property Charter and companies will simply have to find ways of meeting the challenges of transformation and the Property Charter. These ways, in my view, will have to be extremely innovative if the industry is to be successful in attracting black talent, which up to now certainly has had no real incentive to join the real estate industry.

Regulatory

From a regulatory perspective, we hope that next year does not have as many regulatory implications and that the full effect of the Consumer Protection Act will have been bedded down and properly understood. However, looming on the horizon is the new Property Transactions bill, which is in draft form as a long-awaited revision of the old Estate Agencies Affairs Act. Undoubtedly, this new bill will have significant ramifications for the residential real estate industry and the industry will need to scrutinise it carefully when it is made public.

2012 market

Our view is that the market is likely to be much more of the same, with metropolitan South African residential markets chugging along at a gentle and slow pace. It should improve, as the debt burden on households continues to ease and as positive sentiment slowly flows back into the residential market and we start to move towards the end of this property down-cycle. Probably taking a little longer is the return and recovery of the leisure market sector within the residential property market and it is unlikely that there will be significant improvement in this market, although we do believe that the start of the recovery in this market will happen towards the end of next year.

We also hope to see an improvement in foreign investment, depending on the political messages that go out next year. However, certainly the foreign market appetite has been dimmed by a combination of factors. It is our hope and expectation that foreigners who have traditionally found South African an attractive place to invest in property will continue to do so in increasing numbers.

From a general South African property market perspective, we hope to see numbers of transactions continuing to increase, hopefully with approximately a 10% increase over this year, and that prices will remain flat in real terms.