Jo’burg home market is ripe for foreign investment

As I was quoted in the New York Times recently, home prices in Johannesburg are undervalued. So much so that they are the cheapest they have been in 20 years.

However, buyers are currently scarce in top end suburbs such as Hyde Park, Sandhurst, Westcliff and Bryanston.

“As a result, there is an oversupply of stock”, I said in the newspaper’s feature on the Johannesburg residential property market.

“In the past three or four months, with the recession over and the Rand and interest rates stabilising, the market is finally slowly beginning to come right,” I added.

(As a sideline comment, it is a tribute to Johannesburg that a mainstream American newspaper, with 2,3-million digital subscribers and a daily print circulation of 59 000, would run a story on the city’s homes market).

The fact is that that home values in South Africa’s financial and commercial capital are perfectly placed right now to attract foreign investors.  Exchange rates are heavily weighted in their favour. So, too, are prices.

Luxury homes

This applies particularly to the luxury end of the country’s homes market as a whole. Year-on-year price growth in that sector has slowed from 11,1% in the last quarter of 2014 to 5,3% now.*

Measured against foreign currency, and taking into the account the depreciation of the Rand, home values in South Africa have reportedly declined by 27 per cent since the world financial crisis a decade ago.

Furthermore, the current average time span that luxury homes in high net worth residential areas in South Africa remain ‘on the market’ has extended from 23 to 29 weeks in the past year.*

Against this background, top-end home sellers – and prospective sellers – in Johannesburg are adapting to reality. They know that the current climate of socio-political and -economic uncertainty has dampened market sentiment.

 It seems set to remain that way for some time, even though green shoots of improvement are starting to emerge.

They are also aware that their properties will not fetch the same prices that they may have achieved in the era before the 2008 global recession and the start of the Jacob Zuma presidency a year later.

Banks more expansive

Meanwhile, a positive indicator for South African home buyers is that the country’s banks appear to be sitting comfortably. They have seemingly become more expansive in their current approach to the granting of home loan applications.

For example, two of the relatively ‘big ticket’ home sales Ennik Estates secured recently in Johannesburg were 90% bank bond-financed for the South Africans who bought them. (The maximum bank financing available to non-permanent residents is 50%).

This is refreshing, given that a feature of the near-collapsed market of the past has been the reluctance of the banks to lend money. Countless applications for finance were turned down. And when the banks did lend, it was on extremely strict criteria.

• FNB Property Barometer