Property & Wealth

SA property investment – 2016 can prove to be another good year

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To what extent did President Jacob Zuma's firing of Finance Minister Nhlanhla Nene in a clumsy and over-hasty attempt to hijack National Treasury affect the property market end 2015?

You will all recall the massively negative reaction of the financial markets. In this column we look at what impact, if any, that embarrassing interlude had on the SA property market.

It is actually hard to believe that the JSE ended 2015 on a relative calm note, having virtually regained all of the Zuma-Nene losses by close of play on that extremely volatile year! The JSE All Share ended over 50 000, the TOP40 over 46 000, The Financial Index back over 15 000, Industrials over 71 000 and the Resource’s Top 10 over 25 000. 

Full perspective

However, when you consider the many variables at play and dig a little deeper, you still find that the market, in rand terms, remained flat and did not get back to its April peak of 55 000.

In dollar terms the picture is much bleaker as the JSE had actually dropped over 20% in real terms because of the weaker rand. And that is the real legacy of President Zuma's Nene folly – he has left the country poorer, stranded with a weak currency and more importantly, without the confidence and support of its (really valuable) Western allies.

In a nutshell: stocks and bonds ended the year on a weak note.

The question then is how did all of this, the market volatility and weak rand, affect the country's R400 billion+ property sector?

As we have all experienced at some or other time, in the property business you need capital and that means going to the banks for finance. And since 2008 the banks have been loath to take risks, especially in the property market.

So how did they react when their share prices tanked by 30% in those heady two days before Pravin Gordhan was reinstated as finance minister?

The answer is, quite incredibly, they did nothing negative at all. The banking sector rode out the storm and the property market never felt so much as a murmur. It survived those crazy days without skipping a beat and that rock-solid status attests to the incredible stability of this asset class.

In a Moneyweb article of 29th December 2015 Ray Mahlaka reported that South African house prices have shown steady growth, year on year, with the Western Cape leading the pack with a gain of 10.1% this year, followed by KwaZulu Natal with 7.2% and Gauteng on +5.3%.

The general value of property as an asset class keeps rising despite the weak rand.

Pam Golding's CEO, Andrew Golding, attributes the steady in-migration of buyers from other cities like Johannesburg and Durban, and to some extent foreigners, as reasons for Cape Town's dominance in SA's property price growth.

In addition, the general perception that the Mother City is the best-run metro in the country is a big drawcard for the well-heeled and acts as a catalyst to booming sales throughout the Peninsula.

In KZN the growth is concentrated on the North Coast through to Umhlanga and Ballito Bay and, curiously, is not centred on the Durban metro itself.

This is a direct spin-off of the 2010 relocation of the King Shaka International Airport and the development of contiguous residential and industrial nodes which has led to up-market housing estates mushrooming in that area.

Golding further points out that the underperformance of the Gauteng property market is partially due to the global collapse in the prices of commodities and resources which has a direct impact on the many mining communities in that province.

Nevertheless, the urban areas of Centurion, Johannesburg, Pretoria and Sandton have contributed to a healthy average property growth rate for the richest area in the country.

Seeff property group chairman Samuel Seeff says that, viewed from a national perspective, it has been a good year for SA's property market.

He pointed out: “It is still a well-balanced market packed with plenty of eager buyers and tight stock levels. This means that it is still a good time to be a seller, provided you are realistic with your asking price.”

And that also serves as a reminder to buyers to remain disciplined and spend within their means as the fourth quarter of 2015 saw another hike in the repo lending rate by the SA Reserve Bank.

On the developmental front it is again worth noting that the SA property sector is governed in terms of its own B-BBEE Charter.

While the large private property owners have been accused of being slow in coming to the transformation party, the specialised government funding agencies like the National Empowerment Fund and the Industrial Development Corporation are keen to assist aspirant black property moguls. This is evidenced by several new and extremely well-supported black-driven listings on the JSE. May that momentum pick up into 2016.

Message to Zuma and Gordhan for 2016

The government can take heed of the overall stability of SA’s property market – commercial, industrial and residential – and with the Budget coming up in February, it can take positive steps to incentivise and stimulate greater participation by first-time entrants into the ownership of private property.

While the vast majority of South Africans are rural-based and do not own property in the formal sector, it is clear that the urban dwellers are steadily accumulating wealth. They, as the vanguard of the so-called first-time home buyers’ market, are seeing to it that, for the medium term at least, SA’s property market can be expected to remain buoyant in 2016!

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