Wednesday, 04 June 2008
A recently released report reveals that the country's property market is in good shape and that, while the ?boom' is tapering off in certain cities, it's only growth rates, not actual property prices that are dropping.
Knowledge Factory, a marketing insights company, has released a report on property price growth rates for South Africa's major cities. Entitled ?Report on South African Metropolitan Areas: Property Price Growth', the report is based on data derived from the company's South African Property Transfer Guide (SAPTG). The report presents an overview of both historical trends and predicted property price growth rates for South Africa's major cities.
?This report might surprise some property professionals because it confirms that property prices have not dropped recently, but are just growing at slower rates in some areas than has been previously experienced,? observes Veronique Kotzé, Western Cape regional sales consultant for the SAPTG and the report's author. ?It's really a 'good news all round' report. Overall, the whole country is in good shape and has been experiencing strong growth everywhere.?
Deeds data reveals prices and predictions
Like all of the SAPTG information, the report's figures are based on the latest Deeds Office data, in conjunction with other proprietary datasets developed by Knowledge Factory. The following major cities are covered - Bloemfontein, Cape Town, Durban, East London, Johannesburg, Port Elizabeth and Pretoria - and all free standing and sectional title properties (larger than 40m2) were examined, excluding properties categorised as small holdings or farms.
?We also used median purchased prices, as opposed to averages, to make the data as accurate as possible,? explains Kotzé, ?because we're obviously dealing with very large areas and extremely diverse property types.?
As well as highlighting median prices for 2006, 2007 and 2008, together with the year-on-year growth rate achieved, the report also predicts expected growth for 2009 and 2010. ?Although it should be noted that these forecasts do not take economic factors, such as the impact of interest rates, into consideration,? notes Kotzé. ?They are simply based on previously achieved growth and the patterns revealed by those property sales.?
Johannesburg's lead ?no cause for alarm'
The report shows that Johannesburg enjoyed a price growth rate of 21 percent between 2006 and 2007, but that this tapered off dramatically between 2007 and 2008 to -17 percent. A drop that Kotzé believes is a normal indication of the end of the city's property boom and no cause for alarm.
?Johannesburg has, to a large extent, led the national property boom of recent years,? Kotzé maintains, ?and so it is natural that it should also be the first city showing a slight downward trend because of demand dropping off. There has been a slight drop in prices, as the result of a combination of complex factors, but, generally, it still continues to grow, just not as rapidly. I'm also confident that if we were to extend the report on for a further five years, we would see it balance out.?
Pretoria and Cape Town also slowing down
Pretoria has been experiencing the same type of growth as Johannesburg, but not quite so acutely. The city enjoyed a 14 percent price growth rate between 2006 and 2007, which also dropped between 2007 and 2008, down to 4 percent.
?Pretoria has always fluctuated less and been more stable than Johannesburg,? observes Kotzé, ?and perhaps the data gives us a clue as to why since it shows that the median price of property is higher than in Johannesburg. This suggests that the city doesn't have as much middle to low cost housing and, therefore, has older, more stable residential areas.?
Cape Town's property price growth rate is also slowing down and suggests that the property boom is tapering off there too. The 2006 to 2007 growth rate of 22 percent dropped to 6 percent between 2007 and 2008. Nonetheless, the city continues to offer the highest median values for property across the country.
Regional cities on the up
In contrast to the big three metropolitan areas, regional cities like Bloemfontein, East London and Port Elizabeth are in the midst of their property booms and currently enjoying healthy property price growth rates of 40, 30 and 14 percent, respectively. ?This is great news and a reflection of both big economic injections, like the building of the 2010 stadiums, and strong property development,? Kotzé notes, ?although, clearly, these growth rates are also expected to start to curb over the next few years.?
Kotzé is also quick to point out that the report suggests that Port Elizabeth is actually at a different stage in the growth cycle to Bloemfontein and East London. ?In fairness to Port Elizabeth, while its property boom started after the big three, it is ahead of the other regional cities,? she observes. ?A fact reflected in the 40 percent price growth rate it achieved between 2006 and 2007.?
Growth rate reflects stage in property cycle
While the report reveals that some metropolitan areas are enjoying significant growth and prices are dropping in others, Kotzé reiterates that this is really a reflection of where that particular city is in the property cycle and current levels of demand for property, rather than the actual value of the property within it.
?This report is only a very high-level snapshot of a complex set of underlying conditions,? she confirms, ?but it still clearly shows that property prices have not dropped. They are just growing at a slower rate than they have in recent years. Some properties have indeed been sold "at a lower price", probably due to recent rate increases, but this is not a trend yet. Further hikes and other economic pressures may very well change that. It may well take longer to sell a property in the big three cities right now, particularly in relation to expectations that were set three or four years ago, but the value of that property is still growing.?
For further details, download the report or visit www.saptg.co.za Tag it!