The inexact science of foresight provides an appropriate backdrop to our look ahead for South Africa’s real-estate sector in 2011.

With 20/20 hindsight, we can confidently report that the past two years’ alarming decline in the number of sales, bonds and estate agents was largely influenced by both local and recession global cycles. In June 2008 prime sat at 15,5% but some energetic cutting on the part of the Reserve Bank reduced that to just 9%, the lowest rate since February 1974. The longed for mini-recovery in 2010 subsequently lost some steam in Q3 and Q4 with year-on-year growth figures slowing.

‘Where to from here’ can be answered with another science, namely insight; less accurate than hindsight but much better than foresight!

THE ECONOMY

The favourable interest rate environment still has to work its way through the primary and secondary economies. Generally, ripple-effects of rate cuts (and hikes) can take up to 18 months to dissipate. Unfortunately the low rates are not the panacea everyone had hoped for. The overall economic climate, suffused as it is by debt-deleveraging, high unemployment, tight lending criteria, low business confidence and high residential stock levels, presents challenges that cannot all be repaired in 2011.

The magic toolbox is wanting. Just when you have found a loose nut, you discover that you don’t have the right size spanner. Fears of a potential sovereign debt crisis in Europe continue to plague economists. There is little the Reserve Bank can do to stem the capital inflows which have propelled the rand to unwelcome levels. The Bank has repeatedly said it will not target a specific exchange rate for the rand, but said recently the currency is overvalued. A strong Rand means that foreign investors find South African real-estate less appealing and may look elsewhere for bargains.

Inflation is expected to remain at an average of 4,3% in 2011, moving marginally upwards to 4,8% during 2012. Food and petrol prices have been identified as potential longer term risks. We do not expect any fireworks in the domestic growth outlook. GDP growth sat below 3% for most of 2010 and is expected to average 3,3% and 3,6% in 2011 and 2012 respectively. Household consumption expenditure is similarly expected to remain constrained, with high unemployment and significant household debt levels blamed as culprits.

Residential repossessions will likely decrease in 2011 as financial institutions use more innovative mechanisms to assist defaulting clients. SAPTG has repeatedly said that this year will be consolidatory in terms of house price growth with the middle residential sector set to remain particularly muted throughout the year. 

At the lower end of the spectrum we believe that house price growth will get stronger due to down-sizing and new entrants qualifying for mortgages through government-sponsored or driven programs. 

Prices in the luxury upper end including leisure properties at the coast and golf estates are expected to remain weak throughout the year with some distressed units selling below replacement value.

However, resilient long-time property professionals and investors know that property cycles don’t stay in the doldrums forever and work done in 2011 will form the foundation for improved sales next year.

LEGAL

The much anticipated Consumer Protection Act (CPA), designed to look after consumer interests will be tested in courts and its impact on developers, sales agents and sellers will become more apparent in coming months. Also the Protection of Personal Information Act (POPI) will make landfall and affect the way in which many estate agencies, bond originators and law firms interact with potential and existing clients. POPI was conceived to give effect to the right to privacy by ensuring that an individual’s personal information is safeguarded when processed. It balances the right to privacy against other rights, such as the right to information as well as important international interests.

EDUCATION

The end of 2011 marks the deadline for all estate agents and principals to have submitted their portfolio of evidence (POE) or have met the requirements of the National Qualifications Framework (NQF) 4 and 5 respectively, if they want to continue to trade and earn commission in 2012. While many procrastinate, others are already reaping the fruits of a qualification that will stand them in good stead for the year ahead.

SUMMARY

With the benefit of hindsight and the addition of insight, foresight would indicate an interesting, if not a particularly earth-shattering year for real-estate in 2011. But then again, nothing stays the same, so hold onto your hats.

 

Article by: Dieter Deppisch - SAPTG