No ‘second bubble’ for SA property market
With the real estate markets in the US and the UK buzzing with speculation that a second housing bubble burst could be on the way, the question has arisen as to whether SA could also experience a rerun of the 2008/9 market collapse.
But this is highly unlikely, says Lew Geffen, chairman of Sotheby’s International, for a number of reasons, the most important of which is the fact that there is no longer a big surplus of unsold properties in the local market.
“Most of the properties that were in “distress” after the recession have now been disposed of through the bank-assisted sale programmes and, in fact, we are experiencing a shortage of properties in many areas now, because there has been so little new development over the past four years, in contrast to the over-exuberant development that was taking place prior to 2009,” he adds.
“And housing markets collapse only when supply far exceeds demand.”
He says SA’s home loan interest rates are currently stable at historically low levels, and this takes care of the second key element required for a housing bubble to burst, which is rising interest rates that diminish housing demand.
“In 2006, at the height of the last boom, the home loan interest rate was 10.5 per cent, but by mid-2008, when the market started to collapse, the rate had risen to 15.5 per cent,” he explains.
He adds that the banks are extremely conservative now in their valuation of properties for home loan purchases, and insistent that more than two-thirds of potential buyers put down substantial deposits.
“In this way, they are keeping price growth in check and ensuring that most buyers have sufficient leeway if and when interest rates do start to rise.”
As for new development, he says, while recent StatsSA figures do show an increase in residential construction, this is nowhere near the levels reached before 2009, and unlikely ever to be again, since the banks are also super-cautious about funding new projects, even though any new units that do come onto the market are very quickly absorbed.
“There is, thus, no way – barring an international financial catastrophe – that a housing bubble is going to develop and burst in SA over the next few months or years,” Geffen says.
“Instead, the market is all set now to consolidate its recovery and resume steady growth of around nine to 10 per cent a year.”
