If you aim to purchase property at the bottom of the market, while prices are at their lowest, then you’d better buy within the next nine months.

That’s the advice of Lew Geffen, chairman of Sotheby’s International Realty in SA, who says all the signs are that prices will start to move upwards again at this time next year.

Reacting to the latest building plan statistics, he says these indicate that the market is currently at its lowest ebb. The figures show that the total value of residential building plans passed in January and February this year was 47.5 percent lower than the value of plans passed in the same months of 2008 — and that the value of plans passed for new flats and townhouses actually dropped by 66.5 percent.

"What this means is that most developers have no confidence in the market at the moment and are not willing to commit to any new projects. This is a natural consequence of the severe fall off in sales over the past year and the result will be that very little new stock will be brought to market in the next 12 to 18 months."

Tremendous demand backlog

However, he says, the figures do not reflect the tremendous demand backlog that is building up currently because keen buyers cannot get access to credit. "Interest rates are already down by 3.5 percent, which will really impact in nine months, and a further one percent that is anticipated will put us back to before the property downturn. This coupled with the banks’ lending policies lightening up will bring positive change to the market, causing a surge of buying that quickly mops up the existing stock in the market and, in the absence of a supply of new stock, starts to drive prices up again.

"But at that stage the developers will be behind the game for at least a year and the demand/supply imbalance will cause prices to keep rising. This is a cycle that repeats itself every decade and those who want to buy at the best time in order to maximize their real estate returns should take note."

Furthermore, says Geffen, those who are in a position to buy now should opt for pre-owned properties rather than newly-built units. "Thanks to the high building cost increases over the past few years, recently completed new homes are quite a bit more expensive than pre-owned homes on a metre for metre basis and there is hardly room for negotiation.

"So, if you look past all the shiny purchase incentives that developers are currently offering buyers, pre-owned homes are still better value for money. What is more, they offer a greater margin for profit when the market turns."

Latest data gives reasons for optimism

Property trend analysts are impressed that in the first week of April mortgage loans granted in the US were 77 percent up on the April 2008 figure. A similar, though not quite so spectacular, rise was recorded in the UK for the same period.

Drawing attention to this very welcome turnaround in the current situation, Tony Clarke, MD of Rawson Properties, asked the question, "Does this indicate that the recovery has begun? If one accepts the old maxim that the USA and the UK set the economic patterns for the world, is it possible that in SA the long-awaited revival is not far off?"

Clarke said that although historically it has been accepted that there is a lag period of six months before the SA economy is influenced by the US/UK market, the latest ABSA figures show that, in real terms, the declines in SA house prices have been nowhere near as drastic as those of the US and UK markets.

"We can, I believe, now be optimistic that in six months SA house prices will stabilise at around current levels.

"I am aware," said Clarke, "that almost everyone putting out a positive, hopeful message of this kind these days is immediately shot down by commentators — especially the sarcastic, amateur blog brigade who reply to all bullish statements published in the online media — but I am not saying that the situation has radically altered yet: all I want to stress is that there are now indicators (including these latest US and UK mortgage lending rates) which give hope."

Other positive developments, said Clarke, have been that:

• Trevor Manuel, in his budget speech, drove the message home that the banks now have to extend credit to worthy customers. The current holdbacks, he said, are not acceptable.

• The banks (with the exception of Standard Bank) have made peace with bond originators and once again accept that they have an important role to play. Furthermore, he says, the banks are now showing an increased appetite for bond lending.

• The elections went off peacefully and the JSE Securities Exchange and the rand have not been affected by the prospect of a Zuma-led government.

  "The rand’s performance has surprised most and I, for one, am now predicting that it will be in the low R7 to the dollar bracket by early 2010. Everything we have said about the soundness of the SA fiscal policies is now better understood — not only here but overseas as well."

• The number of cash buyers has increased.

  "A surprising number are paying 100 percent of the price in cash (and getting good deals as a result) and we have seen a big increase in those able to put down 10 to 30 percent deposits. Countrywide the number of visitors to show houses is on the increase at all agencies."

• There has been an increase in the number of immigrant workers and returning expatriates who now see SA as a better prospect than most of the First World countries because it is weathering the global economic crisis more resiliently than them.

Clarke believes that the 350 basis points drop in the interest rate since December 2008 will stimulate buying and increase the number of those able to afford bonds. It takes time, he reminds us, for these changes to affect the market.

"Right now," said Clarke, "I think that we should all be taking note of those indicators and I urge the banks, in particular, to study the US and UK figures and ask themselves if the time is not ripe to step up their bond acceptances. Those banks getting in now may well be grateful they did so ahead of stronger demand and greater competition."

Extracts from Property Editor Kabous le Roux's 6 May 2009 newsletter

...according to analysts from Absa, and in stark contrast to statements recently made by top estate agents, there won't be a recovery any time this year: "…despite the expectation of further interest rate cuts the household sector may continue to experience some financial strain this year, especially in view of an expected poorly performing economy."

Clearly Absa doesn't expect a recovery in property prices before the economy turns for the better, no matter how low interest rates fall…

…Absa doesn't expect residential property to bottom before the second half of this year after which they expect only a gradual recovery. For the year in total the bank is forecasting a nominal decline of between three and four percent, implying real (taking inflation into account) house price deflation of around 11 to 12 percent.

There'll be more interest rate cuts for sure, but these alone won't boost our ailing property market as a recovery will be dependent on further improvements to affordability and a return to growth for the economy.

Having said all this, when will it be a good time to buy property? It's extremely hard to time the market, so I suggest you forget about it. As I've said many times before, instead ask yourself if you can comfortably afford to buy, taking into account a rate hike or three. If yes, and you've got at a 20 percent deposit saved up, then now is a great time to snatch a bargain in a severely oversupplied market. If not, then buying property is a bad idea no matter where in the cycle we are…

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