Charlene Smith
Despite a recent drop in interest rates, and a further 1% to 2% drop expected later this year, property markets remain in the doldrums.
Banks are under pressure too as defaults on mortgage bond payments increase. Housing sales are weak and industrial, commercial and retail rentals are stagnant or declining.
The only city in the country that has a strong housing market is Cape Town – but it is pricing itself out of the pockets of South African residents.
Cape Town is currently one of the world’s trendy places in which to buy a house – but trends come and go, and those who invest at high prices now may not get the returns they would like in a few years’ time, unless they have bought with care.
An excess of industrial building activity is seeing industrial rental levels reasonably stagnant in Cape Town, although some of the highest commercial rentals have been recorded in that city in recent times.
Rode and Associates property analysts say that since 1990, the Johannesburg house market consistently underperformed, despite a rally in upper-price houses in the second quarter of 1997. During the past 18 months, house prices in Pretoria also lost ground and prices in Durban began collapsing in mid-1996 and have yet to regain ground. Port Elizabeth house prices began a downward trend from the middle of last year, but the Western Cape continues to see strong upward growth boosted by foreign demand and up-country buyers.
Rode does not see an improvement in house prices until early 1999, even if interest rates continue to fall
A collapse in housing prices is seeing estate agents under pressure to meet their commitments and, in some cases, not giving new buyers the service they deserve. Dr Piet Botha, chair of the Nationlink estate agency group, said that recent figures released by the Estate Agents Board showed “only a very small decrease in the number of complaints lodged against estate agents in the last year, despite a drop of more than 2 000 in estate agent registrations”.
He said the market was characterised by inexperienced consumers reliant on the knowledge and ethics of estate agents, and, on the other hand, inexperienced agents pressurised to do business at all costs.
None of this is good news for buyers, sellers or the banks. The Banking Council of South Africa recently released statistics that show there are R6,7-billion worth of non- performing loans in the housing market as a whole, with only about R1,6-billion non-performing loans in townships.
In all, there are R11-billion worth of mortgage bond loans in the townships, which makes the non-performing loans there a surprisingly small percentage despite oft-voiced concerns about the risks in that sector.
Banking council CEO Bob Tucker says the greatest difficulty with non-performing loans in that sector is that banks often experience difficulty in repossessing houses. Banks are also then liable for unpaid rates and service charges.
The commercial and industrial rental markets are not performing much better. Office-rental growth, according to Rode, is slowing down. The Johannesburg CBD is “showing a negative real growth of 32%, with the Sandton CBD slipping to record a scant 0,3% real increase in office rentals over the same period a year ago. The Pretoria market is performing the best, with 15,6% real growth last year, Durban is showing a growth rate of 2,6% and Cape Town 8%.”
However, Colliers RMS property consultants say in their most recent report on retail properties: “The CBDs, contrary to popular myth, continue to attract retail tenants, though the nature of these tenants is different to those of a few years ago, with today’s emphasis being on stores offering credit, service businesses, fast-food and discount operators.
“Prime retail locations in Johannesburg, Durban and Cape Town CBD’s are fully let with strong demand exceeding available space. This is only true, however, of prime retail locations and stores that are off-prime either do not let or let at substantially discounted rentals, with the differential between prime and off-prime being as much as 50% to 70%.”
While industrial property rentals also slumped late last year, Nelspruit continued to show high growth in anticipation of the Maputo Development Corridor. It was the top performer in 1997 followed by industrial property in Port Elizabeth, the Cape Peninsula and the West Rand. Pietersburg industrial areas fared the worst in 1997.
With this in mind, it may be as well to hang on to the property you have for now and pour any spare cash into liquidating your bond. Although prices are low, the market is generally one that suits only the first-time buyer.
However, for the commercial or industrial lessee, there has probably never been a better time to negotiate before signing or renewing a lease.