It's still bad, but get some tips

Evidently the South African property market is even more troubled than anyone realised.

Last week property economist John Lottering of Rode and Associates warned that there had been an alarming increase in flat vacancies in Pretoria and Durban.

Worryingly, in Johannesburg, tenants are only paying R192 a month extra for a one-bedroomed flat in Johannesburg's arty areas of Westdene, Melville or Auckland Park compared with prices in the city centre.

At the same time, Erwin Rode another property economist who owns Rode and Associates, warns that those people who are selling their houses should not expect to see prices rise ahead of this year's FIFA World Cup.

He says that some estate agents are creating hype and optimistic expectations from the major international event.

Now my question is if property sales have fallen dramatically in the past year and rental prices are also particularly soft, what hope is there for the property market in the immediate future?

I think that somewhere in-between these two views is where the realistic property owner should pitch his outlook. Let's start with the rental market.

Yes, there are thousands of properties available in all South Africa's major centres, and if I take Pretoria as an example, most owners are inflating their prices by at least 10% or 15% in the hope of finding a tenant who will cover the repayments owed to the bank.

The same applies to properties in Johannesburg, Durban, Cape Town and all the other major centres too. But because there are more flats available in the inner city areas, this does not necessarily mean that the rest of the rental market is depressed.

I know, for instance, that in central Johannesburg, around Newtown, there are some really fine properties available. The problem with having a property there is that you have to run a gauntlet of getting into and out of town every day.

That's why I, and many like me, would rather move to a place like Melville, Westdene or Auckland Park as the gauntlet of commuting is less daunting.

The same applies to suburban complexes in Hatfield, Lynnwood, Centurion and so forth.

Old flats in the inner city areas are generally rather run-down and frankly in urgent need of a total revamp. This makes them considerably less attractive as a rental option in this market and who could blame prospective tenants for choosing something more modern in areas that are, perhaps, a little more safe?

So while the rental market is soft, it seems that where there are really nice properties available, there are still tenants queuing up to rent the property. So my suggestion to all prospective tenants is find the property that you want to move into and then offer the owner less than the asking price and negotiate from that perspective.

Of course the 10% you save should be put into an investment product (such as unit trusts) so that the money you save will keep working for you.

On the second point of prospective sales, if anyone was idiotic enough to think that some soccer fan would come to South Africa and immediately want to buy a property here then they've surely got rocks in their heads.

Any agent who expects property prices to rise as a result of the 2010 spectacular is simply not worth listening too. People interested in buying property anywhere in the world will most certainly know a thing or two about the market and will have done some preliminary research as well.

What is worrying for me is that banks still seem to be rather tardy about lending their money to qualified homebuyers. Some of the statistics that have been bandied about suggest that property prices have fallen by as much as 20% compared with last year or with 2007 and that's to be expected in terms of the cyclical nature of property.

There's no doubt that the property market had seen prices increase beyond a reasonable level in the heady years of 2006 and 2007 when banks were lending freely.

But the main point is that banks were lending freely.

Now that banks are not lending, prices have fallen and all those people who had taken a bond (in 2006 and 2007) and counted on a salary increase to keep meeting the payments are the ones that are in serious trouble now.

If banks were lending money now, that wouldn't be too much of a problem for cash-strapped homeowners because new buyers could be found or, better still, the existing bond could be increased in line with the new values.

This has not happened.

So the harsh reality is that unless banks free the thumbscrews they've got on new loans, no significant increase in property sales is likely to occur.

For those of you that own homes, my own view is try your best to keep them and to weather the 2010 economic storm that we are starting to feel right now.

For those of you who are renting, know that you're in a fairly strong negotiating position and when negotiating a new lease, offer the owner (or the agent) at least 10% less than the asking price.

If you are the owner of an investment property that you want to rent, take any offer that's within 10% of your asking price and then bide your time because, in the years that lie ahead, property prices will increase and if you are paying a bond of R10k a month and getting back rental income of say R9k a month then the property itself is actually costing you just R1k a month at the moment.

In three years time, when prices have risen and when banks are lending more freely you will make back whatever investment you've had to subsidise at the moment.

There is no easy solution to property sales or property rentals in a market that is depressed. So it's essential that you wait for the next cycle to occur.

It will come in due course, but it's not going to magically rectify itself in the six months ahead of the Football World Cup.

So if any agent pops his or her card in the post box suggesting that you should give them a call and take advantage of 2010, burn the card.

And if they knock on your door with the same offer, tell them to take a hike.

*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and doesn't pretend to be facts or advice. Contact him at paddy@neomail.co.za.

Readers' Comments Have a comment about this article? Email us now.

It's a pity that the rental/estate agents still feed misinformation to the public. – Anonymous

As with everything in life, there is no reality only perception.

Different areas within South Africa will experience diverse economic conditions with regards to property.

I can report from the Durbanville area in Cape Town that the property market has indeed picked up, to the point of being "crazy" at times in the last couple of months, agents are selling 5+ units per month, and the prices have increased dramatically from a year ago.

I am still in shock that a run down house on the market for R950,000, that I was told I could get for R850,000, just sold a year later for R940,000. That is practically full price! This is just one example of a thriving property market in a section of the Northern suburbs at least.As for rentals, there is a high demand for up market units, we are still seeing a rise of 10% per annum in those I personally manage, which is astronomical considering in America you'd be looking at around 4% increase, if managed by professionals.

So is the glass half empty or half full?

Don't slate the agents, ask them to back up their claims, you may be pleasantly surprised. –Claire Brandon

Well… I bought my house in April 2007 and am still having a good payment record. I'm happy for having been able to read this article as it gave me some sort of encouragement and HOT tips on how to tackle this situation in the property market – BK