Global property markets changing
Times in the real estate industry are changing fast - a fact that has been commented on in the media a lot lately. These changes are occurring on both a local and international scale, and realtors need to be prepared and change tactics in order to survive. International real estate expert Duncan Gray gives his views on the changing market conditions with reference to similar patterns in the international market
Globally, the reason for the residential property boom can be attributed to the stock market slump in 2000, and the move investors made to other options with bigger and better returns. Residential property was the natural progression in the investor market and some countries like the UK and Australia experienced a sharp rise in property values while others took a little longer to get started such as the US, France and South Africa.
Even though initially the property boom in South Africa was a bit behind in comparison to the rest of the world, the country has since outperformed others. In fact, South African house prices have recorded one of the highest growth rates globally since 1997.
The natural cooling off of the market has definitely begun, but South Africa is not the only country that is experiencing a slow down. There has been a dramatic decline in the international market growth, especially in those countries that had a good head start on the international boom like the UK and Australia. But even so, it seems as if the markets are cooling down at a measured pace, which could indicate that the local property market is unlikely to experience a sudden decline in growth or prices in the near future.
Aside from the international slow down, factors like over pricing and interest rate hikes have been added to the mix locally.
The latest Absa house price index, published on 5 September 2006, indicates on a month-on-month basis, house prices declined by 0,1% in real terms in July this year (+0,2% in June), which was the first real month-on-month price decline since April 2002 when it was -0,5%.
The report also notes that due to the inflationary pressures present in the economy, combined with large current account deficits and continued strong growth in domestic credit extension on the back of sustained high levels of consumer demand, the South African Reserve Bank's Monetary Policy Committee (MPC) is expected to hike interest rates further towards the end of the year.
They are looking at a 50 basis point increase in rates for October, and perhaps an even larger than 50 basis point hike at the MPC meeting next month. Then there is another increase of 50 basis points forecast for December, which Absa believes will bring prime and variable mortgage interest rates to at least 12,5% by year-end. They further note that the MPC is expected to continue hiking rates in a stepped way until the effect of the higher interest rates is visible in the economy. This implies that interest rate hikes could continue into the first half of 2007.
It is expected that the house price growth will continue its downward spiral for the rest of this year, with a growth of 12%-13% for the year compared to the 22% growth recorded for 2005. The expectation is for nominal year-on-year house price growth to be in single digits by the end of this year.
With more interest rate hikes predicted for the future, the market will become even more competitive than ever before and it is now really a case of "survival of the fittest".
There is no doubt that the jobs of estate agents have now become that much harder, and with the constantly changing market conditions, this is set to continue. The changing market has naturally brought about a shift in the way that estate agents conduct their day to day business. It can be seen in the fact that many smaller independent real estate agencies are joining forces with bigger brands in order to capitalise on the tools that these brands provide such as marketing initiatives.
However, the bigger brands are only prepared to take on agents that are top performers, because those who don't perform will not be able to survive in these changing market conditions. Here the low level barriers to entry for estate agents needs to be addressed more so than ever before, to ensure that the agents out there are all top class professionals and can adequately survive in a very competitive industry.
But the consumers' perception about the market also needs to shift. Agents need to educate their clients on the changes taking place in the market to avoid issues like over pricing, which ultimately leads to a feeling of dissatisfaction on both sides. Sellers often feel that the agents are not doing their job properly, which in some instances may be the case. But they need to remember, the value of any property is only what a buyer is prepared to pay, and that if a home is over priced, any estate agent, no matter how experienced and good at their job, will not be able to sell the property and it will end up sitting on the market for an extended period of time.
That said however, it should be noted that demand for residential property in the country remains. There are many properties that are still selling for record prices, and developments that are selling out in record time. When driving around any area throughout the country, the amount of development being undertaken bears testimony to the continuing demand for good quality residential property. The future still looks bright, but the market is ultra-competitive, and it is ultimately only the best who will survive.
News source: www.news24.co.za
Posted by: www.SouthAfrica-CarHire.com
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