17 Nov 2015
“Rapid population growth combined with the ongoing shortage of new housing suggests that the local housing market will continue to enjoy a solid underpinning during the year ahead,” says Dr Golding.
This is according to Dr Andrew Golding , chief executive of the Pam Golding Property group.
“In concluding a successful purchase of a home, or a property investment abroad, it is important to understand which forces driving a property market are local and which are more universal in nature.”
In a recent research note titled ‘ World Residential Markets’, global real estate company and Pam Golding Properties’ strategic partner, Savills, put aside local issues and focused instead on the basic, longer-term market drivers which are relevant to all property markets across the globe.
“While South Africa’s housing market is undoubtedly influenced by our unique political history, and continues to be shaped by unfolding domestic developments, the global market drivers identified by Savills are equally relevant to understanding the key dynamics in the local housing markets,” says Dr Golding.
According to the Savills research report, the single fundamental driver of residential property demand has always been the number of households in a population seeking shelter.
Dr Golding says the price of these homes is then a function of the number of existing housing units (i.e. housing stock) and the amount of money available with which households can compete for them.
Essentially, he says this means that the three metrics identified as having the greatest fundamental influence on housing markets generally are:
• Demographics: the number of households. • Affluence: the pace of economic growth and incomes. • Land and/or housing supply.
If all three factors are positive for a particular housing market, namely a growing population, increasing affluence and limited land and/or housing supply, then house price growth will exceed the general inflation rate,” says Dr Golding. However, he says the absence of one of these variables is likely to stall a housing market, while the absence of two or more is likely to send property values downward. Naturally, the way these variables play out in a particular country and at different times is extremely complex and can result in a diversity of market behaviours. And while these macro-level issues determine the general direction of global housing markets, a series of cultural, policy and even psychological factors - such as a particular market’s reputation as a ‘safe haven’ - can make a tremendous difference to how these markets perform, particularly in the short term.
High-risers, boom-busters, deflators or stabilisers “While South Africa’s housing market is undoubtedly influenced by our unique political history, and continues to be shaped by unfolding domestic developments, the global market drivers identified by Savills are equally relevant to understanding the key dynamics in the local housing markets,” says Dr Golding.
Looking back over the past 30 years it becomes clear just how varied the behaviour in different global housing markets has been, says Dr Golding. Based on the performance of real (inflation-adjusted) house prices in key, global real estate markets during this period, Savills has divided these markets into four main categories:
• Boom-busters • Stabilisers • Deflators • High-risers
Boom-busters
Housing markets in this category are typically members of the Eurozone. The extreme volatility in these markets means they often garner the most attention. After soaring in the years prior to the 2007 crisis, many European housing markets have suffered sharp losses in recent years, with real property values in countries like the Netherlands and Ireland falling back to levels last seen in 1999.
While house prices have started to recover from post-recession lows, these rebounds remain extremely subdued and real house prices remain well below their former pre-crisis peaks.
Deflators
There are just three housing markets in the deflator category: Germany, Switzerland and Japan. These markets have suffered a steady decline in real house prices for an extended period of time. In some cases, like Japan, the decline is also evident in nominal house prices. The defining characteristics of the deflator markets are declining or even falling population growth rates, which is one of the three metrics identified as having a fundamental influence on housing markets. High-risers
The high-risers are to be found in the Commonwealth (Australia, New Zealand and Canada) or Scandinavia (Norway and Sweden). These markets either did not slow during the 2007 crisis or, after a brief dip, have since quickly recovered. Real house prices in all these countries are currently above their 2007 levels, sometimes substantially so.
In all these housing markets, the three main market drivers remain positive. While supply conditions vary from country to country, the key cities in these markets are typically experiencing strong growth in demand and supply shortages, causing housing bubbles to emerge in several key cities.
It is clear from the stark differences between the housing markets of the deflators and the high-risers how critical the combination of demand and supply drivers and local policy responses can be. The key success factors present in the high-performing markets are growing populations, rising affluence and a shortage of housing stock.
Stabilisers
The housing markets classified as stabilisers are found within Anglo-Saxon (America and Britain) and Scandinavian countries. The stabilisers are a mixed group with different circumstances and policy responses, yet all these countries have enabled their housing markets to get back to, or remain on, a more even keel. A few years ago both the UK and America looked like members of the boom-busters category, but their housing markets have been revived by strong population growth and economic recovery, particularly in the major cities. The average performances of both the UK and US housing markets disguise soaring house prices in their key cities.
The performance of the South African housing market in the aftermath of the 2007 global crisis can be viewed either within the stabiliser category or within the high-riser category when prices are measured in real (inflation-adjusted) terms. Two of three key metrics positive for SA housing market “Rapid population growth combined with the ongoing shortage of new housing suggests that the local housing market will continue to enjoy a solid underpinning during the year ahead,” says Dr Golding.
“And while growth in house prices is likely to be limited to single digits, once the local economic outlook improves, a rebound in house prices can be anticipated. It is also important to remember that a stable national housing market does not preclude buoyant growth in more localised metro housing markets such as we are currently experiencing in South Africa.”