40% Price Drop 'an Exaggeration'

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09 Jun 2008

A property leader slams the exaggerated percentages in the drop of house prices being stated by commentators recently.

The whole of the past weekend a TV news channel ran a ticker tape headline that said 'property experts say sellers must brace for a 40% drop in selling prices'. One of the headlines in the bulletin quoted the same point. This was based on a statement made last week by one of South Africa's most prominent real estate practitioners. Since then the statement has been discounted by a number of authorities, from bank economists to other property players.

"I believe this is a real 'shot in the dark' approach, and quotes figures that have no factual basis," says Mike Bester, CEO of Realty 1 International Property Group, "and I think the media has a responsibility to the public to verify statements like this before presenting them as facts. In this instance, the announcer clearly stated that 'house prices have tumbled by around 40%' which is not even an accurate reporting of the original statement that the 40% drop would occur by end 2008."

"I simply can't understand what is to be gained by sending the property market into a panic," says Bester. "True, the market has slowed and actual stats available from Absa last week showed there is a drop in house price growth which, coupled with inflation, translates into an actual drop of around 5% since last year. But several of our branches have shown huge demand for houses in a certain price bracket, so the drop is definitely not across all price ranges."

Joey Naude, principal of Realty 1 in Nigel, concurs: "We have seen high demand for houses in the under R600k price range," she says. Mandla Sepeng of Mafikeng branch has buyers lined up for houses in the same bracket and can't find enough stock, while Dries Dreyer of Akasia branch in Pretoria North is finding that stands are selling well at present, as land remains a popular investment and in many cases the home can be built at a later stage.

Bester believes the property market will survive the current correction. "It's been coming for some time," he says, "so there's no real reason why we should have been taken by surprise. But the whole economic downturn arrived somewhat suddenly, and the fact that it coincided with the electricity crisis has made everyone more negative."

"I believe we need to be realistic," he says, "and so far the economists haven't been far out with their predictions around the interest rate hikes and the percentages. I'm of the opinion that the suggestion of a recovery starting late next year is fairly accurate, and until then business may be slower but those agents who offer good service will still find sales. With so many agents buying into the hype and leaving the industry, it creates more opportunity for others."

Bester's advice to homeowners is to try and retain their homes by renegotiating their homeloans, fixing their interest rates or consolidating their debt, rather than giving up their homes, and to check available statistics before they believe comments that exaggerate the situation.

Readers' Comments
Thanks to Mike Bester for putting the record straight!! Hail it even louder into the marketplace ..

How can a so-called leader make a sweeping statement in a market that is on a downward swing and potentially ignite a self fulfilling prophecy??

If so-called property experts do not encourage the market place when the going gets tough then they should not add fuel (pardon the pun!)to bring it into further disarray. Out of all of the reports I can honestly endorse the balanced report on Pam Golding's website and NO I am not employed by them!! - Jacqui Goodier

So will I be proved right again?

I took issue with an Absa (my employer!) analyst's forecast a few months ago that property will actually appreciate in the next few years, and he's probably eating his words somewhere.

Now I also think 40% might be exaggerated, but don't rule anything out. I repeat that the oil price will not come down anytime soon, ditto food price inflation and power costs. These things have a material impact on the cost of houses.

Literally up my corner where I live a brand new apartment block was built with ridiculous prices. The result? Empty blocks but for one with washing hung out – yes, some poor Pakistanis or Indians cramming it in. Good luck.

Property analysts and realties have to remain optimistic - it's their job and they have to make money – but let them get it into their heads to get ready for tough, tough times like the rest of us. And let them not lie to themselves before they do to the general public.

And anyway, I've always questioned buy-to-rent residential property as a good investment anyway. - Mohsin Wadee

I was out of town when this statement was made on our new 24 hour news channel. I immediately sent them a mail pointing out the potential damage that could be done by such erroneous and irresponsible reporting. To my knowledge, and I must admit I don't watch this channel that much any more, they have not corrected this blunder.

I have been in the financial services industry for many years and am quite shocked at the seemingly uncontrolled fashion that some leaders in the industry make announcements that can harm the very investors that they have been advising and earning commission from in the past. I was also heartened by some very responsible and balanced reporting by others.

It really seems as if the unprecedented growth in property prices over a relatively short period of time have affected the thinking of some people in the property business on what realistic returns of on property investments should be expected over time periods relevant to periods of property investments. If you advise clients on unrealistic short term speculative returns, I suppose you will also predict prices to "plummet" in no time. No doubt many speculators entered the market close to the peak and are now paying a price for bad timing, this also happens in the equities market.

I do however feel sorry for young buyers that purchased in the last year and even after the implementation of the new credit act. It seems as if reckless lending is not only a function of net disposable income but also a function of banks possibly acting earlier on the expectations of declining property markets. The fact that some banks are now insisting on deposits is a tad too late in my view and is a case of the "horse already having bolted".

Thank you for a positive article on repairing the "damage". - Danie de Lange

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