Chris Renecle: MD, Renprop
While there are signs of recovery in the traditional market where homes are typically priced between R800 000 and R1,5million, access to finance remains a challenge in the current property market place, especially in those market sectors that rely heavily on 100% bonds.
We have now experienced almost six years of downturn, and a normal market cycle is said to be seven years from bottom to top and back again. It is however encouraging to note that the UK and US markets are showing good signs of recovery, and South Africa generally tends to lag by about 12 to 18 months – an indication that further recovery is on the cards for South African property.
Residential rental properties have experienced a strong growth of approximately 8% in the last 12 months, which has been spurred on by a shortage of second hand stock available in Johannesburg coupled with a lack of access to finance for many potential buyers.
Rentals properties in Johannesburg are currently grossing higher returns than 100% bond repayments would be on the property, obviously excluding levies and running costs. While properties are not seeing a capital appreciation yet, when the market turns, the expectation is for double digit growth. We therefore anticipate a recovery in the buy-to-let market in the year ahead, with investors expected to return to this segment in the second half of 2013.
We also expect to see demand for rental property in Johannesburg double during the course of 2013, as it is closely linked to lending and supply.
The office sector of the commercial market has hit rock bottom of the cycle and is expected to only start seeing recovery over the next 18 months. The affordable or gap market, where homes are typically priced below R500 000, is just about to hit rock bottom and will take approximately two years to recover.
The retail sector of the commercial market has passed the recovery phase and is now trading strongly. The industrial market, we expect, is close to starting the recovery phase, which we anticipate will happen in the course of the next 12 months or so, although pockets of industrial property in certain areas is performing well.
Over the next two to three years we also expect to see the return of specialised mortgage companies that operate independently of the banks as well as an increase in instalment sale transactions. Interestingly, during 2012 we saw an increase in cash sales, which were sitting at about 20% of all sales we concluded, compared to the approximately 2% experienced previously.
The investors are there, but it’s the bank appetite for risk - which is key to a market recovery- which is holding the market, and the next upturn, back.
That said, now is the ideal time for investors who have access to finance to get into the market before the upturn, while buyers market conditions prevail.