South Africa vs. global house prices

20 Dec 2012

House prices globally have risen on average by 1 percent in the last 12 months with mainstream global prices at 5.2 percent above the Q2 2009 lows.

Everett-Allen says confidence, affordability and debt are constraining Europe while strict lending and the looming fiscal cliff may dent the early signs of growth in the US, and regulatory measures in Asia are keeping housing markets in check.

This is according to the Knight Frank’s Global House Price Index Q3 2012.

Writing in the report, Kate Everett-Allen says Knight Frank’s Prime Global Cities Index, which tracks the value of luxury property in 26 cities across the world, shows that prime property values have climbed by 18.7 percent over the same period.

According to this report, the price of luxury homes in the world’s key cities rose by 1.1 percent in the third quarter of 2012 and by 3 percent on an annual basis.

While buyers await clearer signals as to the downside risks for the global economy – both in terms of the Eurozone’s debt crisis and the US’s impending ‘fiscal cliff’ – luxury bricks and mortar look to be retaining their safe haven status, points out Everett-Allen .

Fifteen of the 26 cities tracked by the Prime Global Cities Index (58 percent) recorded flat or positive price growth in the year to September, but over the last quarter 20 of the 26 cities (77 percent) have seen flat or positive growth – indicating an improving scenario.

The index now stands 18.7 percent above its financial crisis low in Q2 2009 with Hong Kong, London and Beijing having been the strongest performers over this period, recording price growth of 52.9 percent, 45.4 percent and 39.5 percent respectively.

Five cities recorded double-digit price growth in the year to September; Jakarta (28.5 percent), Dubai (19.9 percent), Miami (18.0 percent), Nairobi (17.6 percent) and London (10.0 percent) – a city from each of the five key world regions.

Cities such as Dubai, Miami, Nairobi and London are increasingly considered investment hubs for High Net Worth Individuals in their wider regions.

Nairobi ranked number four and Cape Town ranked number 13 (1.2 percent) are the only two African countries included in this survey.

Everett-Allen says with the Eurozone now in its second recession in three years, buyer confidence is at an all-time low and it is no coincidence that all the bottom 12 rankings are occupied by European countries this quarter.

The Eurozone’s 17 member states have on average seen prices fall by 1.8 percent in the 12 months to September - this compares to other world regions such as South America and Asia Pacific, which have seen growth of 9.8 and 4.2 percent respectively.

Pearl Valley Properties reports an increase in home sales with homes priced between R3.5 million and R15 million while plots are priced between R1.5 million and R3.1 million.

Picture taken by Hansie Oosthuizen of Hansie Oosthuizen Photography.

Prices in the US are now 3.6 percent higher than in the third quarter of 2011, vacancy rates are at their lowest level since 2005 and housing stats are up 49 percent year-on-year (y/y), according to the report.  

Everett-Allen says confidence, affordability and debt are constraining Europe while strict lending and the looming fiscal cliff may dent the early signs of growth in the US, and regulatory measures in Asia are keeping housing markets in check.

The current period of stagnation looks set to continue well into 2013, according to the report.

According to Ronald Ennik, Gauteng luxury homes agency Ennik Estates, the recent report by RMB Private Bank of current annual growth of 31 percent in the ranks of the wealthy in South Africa (compared with 19 percent in 2010) is good news for prime residential property.

With its world-class infrastructure, Johannesburg remains the port of entry for foreign business visitors to Africa – and particularly the fast-growing Southern African region.

“It will create a welcome new layer of buyers of luxury homes and the sustainability of the top end of the market will be reinforced as more of the new wealthy buy into it.”

Ennik says this growth will compensate for the (hopefully temporary) withdrawal of foreign investors who, in spite of the attractions of the weaker Rand, seem to be adopting a wait-and-see strategy based on recent negative socio-economic and political developments in South Africa.

Authors of the global Wealth Report 2012, Renato Grandmont, chief investment officer for Citi Wealth Management and Citi Private Bank in Latin America, pick Johannesburg as one of the world cities of the future along with Cairo, Lagos, Mumbai and other well-established cities such as London, New York and Moscow.

“With its world-class infrastructure, Johannesburg remains the port of entry for foreign business visitors to Africa – and particularly the fast-growing Southern African region.”

He notes that as a result upmarket Sandton, is now by far the most favoured base for foreign corporates intent on establishing operating footholds in the region and this has hugely favourable implications for Johannesburg’s luxury residential property market.

Meanwhile, the latest house price reports in South Africa reveal a slowing down in house prices in 2013.

The FNB House Price Index for November 2012 showed further slowing in its y/y inflation rate from a revised 2.5 percent in October to 0.5 percent.

According to this report, the average house price growth for 2012 is projected at 5.6 percent and 2013 will see low average house price growth of around four percent.

The November Absa House Price Index reveals that middle-segment home values showed a nominal rise of 5 percent y/y after increasing by 3.3 percent y/y in September.

The bank says with house price growth slowing down on a month-on-month basis since mid-2012, y/y price growth is expected to be reflective of this development in the first half of 2013.

Although the house price growth picture is not looking too glamorous, another report reveals that residential property is fast becoming an attractive investment asset class in South Africa.

Click here to read the article.

The FNB and Tenant Profile Network Residential Yield Data report points out that while the average homeowner appears to place much emphasis on the value of their home, when it comes to property as an investment it is actually the income stream that it generates, relative to the price paid, that should really be the focus.

According to the report, weak house price growth that underperforms rental income growth is actually what is required to improve the attractiveness of property as an investment in future, through leading to a higher yield.

The FNB House Price Index for November 2012 showed further slowing in its y/y inflation rate from a revised 2.5 percent in October to 0.5 percent.

Tony Clarke, managing director of the Rawson Property Group says data from their achieved sale prices nationally shows that a slow revival in freehold property (with an annualised nominal growth rate of just on 6 percent) has been offset by the sectional title sector, where over the last year a large number of units have been in negative growth territory.

He says until recently, the sectional title sector comprised almost 70 percent of all new developments in South Africa and as a result, in the boom period sectional title prices appreciated very rapidly.

However, he notes that freehold home prices have now shown real growth of between 1 to 1.5 percent above the inflation rate.

What this growth means is that buyers should be looking at this sector pointing out that in Cape Town for example, suburbs such as Plattekloof and Welgemoed, achieved average sales prices of close to R3 million, whereas in Constantia they have been above R6 million in 2012.

Less expensive areas such as Brackenfell with an average sales price of R1 million appear to offer better value than Wynberg where units which are generally far smaller have an average price of R1.4 million.

When looking at the whole precinct, Clarke says the Southern Suburbs’ average price is around R2.8 million whereas that of the Northern Suburbs is around R1.6 million.

Located between Paarl and Franschhoek in the Western Cape, Pearl Valley Golf Estates recorded record sales valued over R100 million in the past 10 months.  

Pearl Valley Properties reports an increase in home sales with homes priced between R3.5 million and R15 million while plots are priced between R1.5 million and R3.1 million.

Leigh Robertson, Pearl Valley Golf Estates property manager, says due to the location and close proximity to the winelands and Cape Town, security and good schools, more buyers with school-going children find the homes to be ideal for raising a family.

Robertson reveals that international buyers have chosen the estates as their home of choice.

An interesting trend is the number of resale properties to families relocating from other parts of the country.

The balance of sales have been of vacant stands with all the buyers being South African and coming from Pretoria, Johannesburg, Durban, Durbanville and Jefferys Bay, adds Robertson. – Denise Mhlanga

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