Prices Going South In South Africa

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Joburg property: cheaper now than last year

Jackie Cameron

22 February 2008

Top estate agency group reveals property prices are dropping – and could have much more to go. Cause for alarm?

A big bank which tracks residential property prices and a top estate agency group have revealed that home values in some Johannesburg suburbs are on the decline. They say they can see, from recent deals, it is cheaper in some areas to buy now than it was this time last year.

Although it is very difficult to accurately track residential prices - because the same assets don't repeatedly change hands like, for example, listed shares - it is possible to get an idea of trends based on similar properties changing hands.

Bank statistics have generally been pointing to a property market in which price growth has been slowing, rather than prices actually declining.

But, this week, FNB admitted that some areas are indeed showing price drops. However, the bank statistical experts did not want to divulge the names of the suburbs. They told Realestateweb that the statistical samples were too small to prove anything conclusive in some cases - and in others the figure was being swayed, by for example many sales of much lower priced properties pulling the average down.

Generally, the bank still believes prices are growing, albeit at a very modest pace on average.

It also has figures that show many suburbs around the country with double digit price growth.

Estate agents are often best-known for talking positively about, or "talking up", property prices. So it is unusual when an industry player suggests property prices will not necessarily keep heading upwards.

Lew Geffen, who heads the Lew Geffen Sotheby's International Realty estate agency group, told Realestateweb that he sees prices have dropped.

Looking at the figures that are crossing his desk, "I can see a 6-8% shift in prices" for Johannesburg in general, he said.

Geffen believes that this is potentially just the start of a drop in prices.

He predicts that prices could plummet as much as 20-30% in the next two to three years if interest rates do not come down and sentiment about the country remains negative.

Geffen said the boom years earlier this decade were "like living in an unreal world", though of course South Africa's prices have been playing catch up to elsewhere.

Unlike many, Geffen said he is not contemplating emigration. "I am very committed to South Africa. I've got huge investments in South Africa. I would like to see it come right," he said.

As at other estate agency groups, Lew Geffen Sotheby's International Realty is seeing many new listings as a result of families' decisions to emigrate. "In the past they wouldn't come out and say this directly. Now they are," said Geffen.

Estate agents, meanwhile, have also told Realestateweb that times are challenging. Myrna Powell, rated very highly by the chief executive officer of a listed company on Realestateweb's Rate Your Agent tool, said that business conditions are "tough" right now.

Nevertheless, the Jawitz Properties' agent said she remains positive that this is "a cycle we are going through and we'll come out of it".

Others have said there are still many sellers who have unrealistic expectations of what they can achieve - while the shrinking pool of buyers is made up largely of bargain-hunters.

Estate agency boss Berry Everitt, of Chas Everitt International, is more upbeat about where property values are heading.

He believes residential prices will generally remain stable for now, as predicted by economists at the big banks, and are expected to head up in line with inflation over time. Property could easily be 60-70% more expensive in four-five years than it is now.

Of comments that more than 85% of sellers are offloading properties below asking price, he said: "That has been the case for the last 50 years". Most sellers don't achieve the price they want, he said.

Everitt said he is confident that property remains a good investment for the investor, who has a longer-term investment horizon than the risk-taking "speculator".

"Bricks and mortar has always been a good investment for my family," said Everitt of returns made over the past three decades.

He said he too remains optimistic about the longer-term economic picture for South Africa - and in particular the returns from residential property.

* Are property values dropping in your area, or just going up more slowly than they have in the past? Tell us about your local market conditions, below this article. Or send us an email.