Aug 11, 2008:
The current economic environment has had a great impact on the housing market, with high interest rates, spurred on by rising inflation, and increasing building costs reducing affordability and demand.
Funding for new homes has also become stricter, with banks becoming especially tough on funding for secondary homes on golfing and holiday estates. This has placed a number of developers in financial difficulty due to a lack of sales to fund the continued development of estates that require large capital outlays to complete, leaving buyers uncertain of their investment future.
Further supporting this trend are figures released in July by First National Bank, in their index of builders' confidence, which dropped further in the second quarter (Q2) of 2008, from 66 in Q1 to 50 in Q2. This reflected weakening demand for new houses in the face of a tight interest rate environment.
According to Zunaid Moti, chairman of the Abalengani Group, anybody looking to buy property needs to be increasingly aware of the investors backing a development in today's environment. "Property developers that are able to continue with development with the assets to back their investment and the available cash flow to continue covering development costs, while relying on only a small amount of bank gearing, currently offer the most stable property environments to invest in."
"With the continued increases in building costs due to increasing transport costs resulting from the rampant rise in the price of oil, as well as the increased prices of raw materials, property is just going to get more expensive to get into," says Moti.
"We predict that demand for luxury estates will likely increase as the number of opportunities coming on stream decrease."
According to Moti the current uncertainty in the market means that astute investors can benefit greatly from well-placed investments. "If you know what to look for then there are still some very sound property investments to be made in South Africa," he says.
"With less demand and greater supply in the market at present it is exclusivity and buying into sound projects that will ensure a return on investment. An area such as the Drakensberg, which has restrictions on the amount of development that can happen there, offers this exclusivity. Combine this with a developer who has the financial resources to support the continued development of the estate and you can be certain of a sound property investment in what is currently a very unstable market," concludes Moti.
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