Segments of property market to turn in 2012
Century Property and Paragon Lending Solutions believe certain areas could show growth.
CEO of Century Property Developments, Mark Corbett, says after a nearly four year slump following the 2008 global financial crisis, segments of the residential property market are likely to show signs of recovery in 2012.
Corbett says there were already early warnings signs of this recovery in 2011. “For example, the number and value of building plans approved towards the end of last year was well up on the previous year. So too was the number of new residential units completed,” Corbett said.
He said while the majority of these units were in the affordable segment of the market, there had also been signs of buyers seeking out the secure, lifestyle estates.
Corbett says plans approved for residential development went up by 2.2% in the third quarter of 2011 compared with the same quarter in 2010. He maintains the completion of new residential units countrywide increased by almost 7% in the 2011 Q3.
He also said the tightening in lending policies by banks as a result of the National Credit Act (NCA) had also contributed to the slump in the residential market.
“Many consumers still suffer from adverse credit ratings which throttles their access to the credit markets, but there are signs that the banks are relaxing their lending criteria (as well as loan to value requirements) which should allow for a modest increase in mortgage lending growth in 2012”, Corbett said.
He further stated that in recent months banks appeared to have shown greater willingness to extend mortgage finance and have relaxed their lending criteria.
“This was inevitable, as the banks are sitting on large cash holdings earning relatively small returns. Demand for mortgage lending is coming from new entrants to the property market, untainted by adverse credit ratings, and existing home owners seeking their ideal home,” Corbett said.
He says South Africa is also likely to see a return of foreign investment in 2012. “The weaker rand, coupled with cheaper local property prices, will attract foreign money in search of superior long term growth. Overseas property markets, from the US to Spain and China, have been pulverised by the unfolding international banking crisis, which is far from over,” Corbett says.
The CEO of Paragon Lending Solutions, Gary Palmer, has a different view. Palmer says the impact of the recession on the value of residential development and stringent legislation in the banking sector has made it almost impossible for South African property owners to secure a loan from the major banks. This is where the security for the loan is residential investment property such as secondary flats or houses rented out to third parties.
This is leading to property owners seeking finance in order to initiate or expand projects to turn to second-tier lenders for assistance.
“In the current environment, big banks are tending to rely on sustainable income to service their loans. As a result, while they are amenable to providing finance to commercial property owners with blue chip tenants where there are long leases in place, there is currently almost no appetite for financing residential investment properties or blocks of flats where the residential income will be used to service the loan,” Palmer said.
He says demand in rental residential property is strong in this country at the moment, driven by the rising cost of living and the relatively low approval rates on home loan applications