Among the advanced economies, the US and UK recoveries are gathering momentum, while growth in the Eurozone remains chronically weak with several threats to the downside and Japan's recovery falters. Among the emerging market economies, growth in the other four BRICS nations – Brazil, Russia, India and China – has disappointed market expectations, with China heading for its slowest growth rate since 1990.
The International Monetary Fund (IMF) has warned that in 2015 the global economy could remain trapped on a new 'mediocre' growth path. Yet within that, there are likely to be pockets of vibrant growth, particularly in Asia and Sub-Saharan Africa, as the pace of recovery becomes increasingly country specific.
This can be best illustrated by the huge disparity in IMF growth forecasts for the big four global economies in 2015. These range from China (7.1%), the US (3.1%) to Euroland (1.3%) and Japan (0.8%). The IMF warns these growth disparities could make for a bumpy ride in 2015.
What of South Africa?
South Africa's growth prospects have deteriorated steadily throughout 2014 – prompting analysts to slash growth estimates to just 1.4% for the year as a whole. In part the disappointing local performance reflects the impact of the uncertain global environment – particularly Europe's sluggish growth, given that the region remains a crucial trading partner for South Africa.
The recent slump in global commodity prices has also weighed on South Africa's economic performance. However, much of this year's disappointing growth is attributable to local developments – including rising prices, labour tensions, load shedding, transport constraints, interest rate hikes and general policy uncertainty.
However, the local economy is expected to improve moderately over the next few years, supported by the continued modest recovery in global growth, rising exports to the vibrant economies of our African neighbours and the easing of transport and logistics constraints as infrastructure projects are completed.
Furthermore, the current softening in global food and energy prices is offering beleaguered domestic households a measure of relief, as local inflationary pressures subside. Unless the Rand suffers a renewed bout of depreciation, the easing of local price pressures will allow the Reserve Bank to ensure that further interest rate hikes are gradual and modest.
Global property market
In the wake of the global financial crisis, attempts by major central banks to revive their economies with ultra-low interest rates have fuelled a healthy recovery in global property markets. However, just as the performances of global economic recoveries differ widely in the post-crisis environment, so too do the performances of the various housing markets.
House prices have seen a healthy rebound in America, Canada and Britain. However, weak spots remain, particularly in Europe – with prices continuing to plunge in countries like Spain and Italy.
Even as analysts worry about the strength of the global economic recovery, there are concerns that the record low interest rate environment is fuelling new housing bubbles. To assess whether or not house prices are at sustainable levels, there are two key measures:
- Affordability: the ratio of house prices to income per person after tax
- Investment opportunity: the ratio of house prices to rents
If these ratios are above their historical averages, then house prices are considered to be overvalued. But if they are lower, then prices are considered under-valued.
Using these two measures, The Economist magazine concluded in August this year that house prices are at least 25% overvalued in a number of major countries – notably Hong Kong, Canada and New Zealand. The over-valuation in these markets bears an uncomfortable resemblance to the pre-crisis US housing boom. America itself has seen a healthy recovery in house prices, but is showing little sign of a housing bubble.
South Africa's housing market
South African house prices have risen strongly since the 2008 recession ended, supported by the Reserve Bank's aggressive interest rate cuts in response to the global financial crisis. While the increase in prices gathered momentum during the first half of 2014, the pace has slowed in recent months – reflecting the growing pressure on household disposable income, the impact of the recent, albeit modest interest rate hikes and the renewed slump in business and consumer confidence.
Encouragingly however, there is little evidence of a residential housing bubble. When adjusting for inflation, the increase in real prices since the end of the 2008 recession is marginal. In fact, when comparing house prices against disposable income and rental, the South African residential market is estimated to be broadly in line with its long term average (ie neither over nor undervalued).
And looking ahead, expectations of a modest strengthening in economic growth, coupled with an easing in the inflation rate and a very gradual series of interest rate hikes, the outlook for the residential market is positive.
PGP record sales in October
We are pleased to report that Pam Golding Property group sales turnover continues to increase by in excess of 20 percent year on year for the third year in succession. In fact we had an exceptional month in October, concluding total sales of almost R1.83 billion - our highest monthly sales turnover ever achieved.
Currently, for the financial year to date (March to October 2014) the PGP group is 24 percent ahead of the previous financial year's sales and anticipating total sales for the year ended February 2015 of R18 billion. Unit sales for the year to date have also increased by 11 percent, while our average selling price is currently R2.03 million, up from R1.833 million the previous financial year.
Within the Pam Golding Properties sales environment, the greatest demand for homes across the various price sectors is by far in the price band from R1.5 million to R6 million, accounting for just over 52 percent of our total sales (split almost evenly between the R1.5-R3m and R3m-R6m price bands) in rand terms for the past 12 months (November 2013 to October 2014).
While the previous trading period in 2012/2013 reflected a similar statistic of 52 percent for the R1.5-R6 million price segment, this is now been weighted slightly more towards higher sales concluded in the R3-R6 million segment.
In terms of PGP sales activity (ie number of units sold), the R1.5-R3 million price band has experienced growth of just over 15%, while the R3-R6million price band has increased by almost 30 percent. Of note is that our R6-R12 million price segment has achieved exceptional growth in units sold of 59.5%, while the segment from R12 million upwards has increased by over 27%.
As we have noted in the inaugural issue of the Pam Golding Residential Property Index, and based on a basket of sales which have transacted at least twice over the past year, the R3 million plus price band has led the market in terms of relative house price growth.
Our view is that this segment comprised a relatively higher proportion of cash sales than lower price bands, and being significantly above the national average selling price of a home in South Africa of approximately R900 000, is a relatively affluent sector. This has enabled the upper sector to transact through challenging economic times, in the process creating some buyer demand relative to supply and therefore achieving house price growth at a faster rate than other segments.
Given that stock shortages are now being widely experienced in regions and areas around the country - particularly in metro areas and popular hubs - and in all price bands, it will be interesting to see where the greater supply: demand tension will exist in 2015.
Top End Sales
Noteworthy top end residential sales concluded by PGP during the calendar year to date include homes, lifestyle wine farms and apartments spanning a broad cross-section of properties in the Western Cape's Winelands region, Cape Town Atlantic Seaboard and Southern Suburbs, Gauteng and other regions around the country which achieved prices upwards of R20 million to R70 million.
Notably these include a Bishopscourt property which fetched R70 million and lifestyle wine farms sold for R62.5 million in Stellenbosch, R36 million and R34 million in the Franschhoek Winelands.
International Buyers
There is no doubt that the Rand's sharp depreciation in recent years has made South African real estate more attractive to foreign buyers with hard currencies. PGPs international buyers of property in South Africa remain an extremely small percentage of our total sales (four percent), and while these continue to represent a broad spread of countries from around the world such as UK, France, Germany, Netherlands, America and China, they include a growing number of African countries, namely Zambia, Zimbabwe, Nigeria, Swaziland, Gabon, Angola, Burundi, Mozambique, Congo DRC, Malawi, Kenya, Namibia, Botswana and the Indian Ocean island of Mauritius.
While top end sales to international purchasers include luxury homes in the R12-R27 million price range in the Western Cape and Gauteng regions, the most notable increase in foreign buying was in the R400 000 to R800 000 price band, which helps dispel the myth that foreigners are pushing up prices by paying in excess of market-related prices.
Huge interest in Portugal
Also on the international front, Golden Visas and incentives have been introduced in some markets as a key pillar in economic recovery, and noteworthy among these is Portugal, which has attracted huge interest.
This is mainly due to the residency aspect, whereby investing a minimum of €500 000 in property will enable a Golden Visa (with all the benefits of a Schengen Visa allowing ease of travel in European Union countries), which could ultimately lead to European Citizenship and a European passport for the investor and immediate family. PGP's International & Projects Division has been responsible for approximately 20 sales with another 15 under negotiation.
At luxurious Eden Island in Seychelles, we have now sold a total of almost 480 units at a value approaching $450 million, with some 80 units left which will be released early next year, priced from $465 000.
On the popular island of Mauritius, the development at Le Parc Du Mont Choisy near Grand Baie is about to commence and here we have sold approximately 110 units at an average price of $1million, which represents well over a ZAR1billion's worth of sales - of which about 40% are South African buyers.
For the rest the interest in the West Coast remains strong – in particular at Tamarina Golf and Beach Estate, while other mandates attracting interest are La Tourelle Luxury Villas, Plantation Marguery and La Balise Marina.
London remains a prime destination for South Africans, with the most popular price range from GBP250k to GBP350k. Adding to our global property portfolio, we are about to launch exciting investment opportunities to acquire prime residential property in downtown Miami in the United States. Poised for significant growth over the next few years and undergoing significant redevelopment, this world class hub of commerce and tourism still offers very good value compared to the likes of New York City and London.
PGP is marketing apartments priced from $363 000 in Brickell City Centre in the heart of the city.
Property Market Trends:
Continued Re-emergence of Developments/New Build Market
With a massive increase in sectional title homes built (15% of total annual building during 2010-2013) these properties are in high demand for a number of reasons, including the desire to live within a secure estate or complex, the convenience of not having to manage a larger property and investors seeking to capitalise on a strong rental demand and strong signs of renewed capital growth.
A central location offering easy access, good security and a convenient lock-up-and-go lifestyle are integral to the success of these developments. Coupled with this trend is a continuance of the popularity of the live, work, play concept in prime nodes within easy reach of transport routes and the workplace.
Slight improvement in mortgage lending:
While still stringent, bank lending criteria have eased to some extent. Statistics released by Ooba, based on their trading for the third quarter of 2014 showed their home loan approval rate in Q3 2014 remained high at 72.2%, indicating approval for approximately seven out of 10 home loan applications.
Rise of black middle class buyer:
The earning power of the black middle class, estimated at some 4.2 million, has had and will continue to have a major impact on demand and growth in the residential property market, helping underpin its sustainability.
High Rental Demand
We continue to note strong letting markets, with a general shortage of stock as a consequence of pent-up demand.
Highlights
From time to time we are fortunate to be involved in iconic and important residential property developments which raise standards, set new benchmarks and differentiate themselves. The appointment of Savills UK – in association with the Pam Golding Property group and 5th Avenue to launch Sibaya Nodes 1 (50 developable ha) and 5 (76 developable ha) real estate opportunities in the rapidly growing development corridor on the KZN north coast to an international market is one such example.
We are delighted and honoured to be part of this prestigious project. Within easy reach of King Shaka International Airport, the development possibilities for these two nodes include major new resorts in conjunction with lifestyle residential accommodation, upmarket offices and developments suited to the leisure and hospitality industry.
In Steyn City, the vast mixed-use development in the north of Johannesburg, where PGP is jointly marketing the residential properties with Steyn City Properties, interest is already running high and our Fourways/Dainfern office is inundated with calls from potential buyers. Proving a boost for the local economy and employment, this major development - together with the road infrastructure improvements, is stimulating further confidence in this burgeoning node.
Also in Gauteng, PGP has merged its East Rand areas with the Bedfordview / Greenstone / Modderfontein and Johannesburg North East areas which comprise six offices covering the R10.3 billion rand residential market in this vast territory – incorporating a broad range of real estate from township homes in Daveyton to mansions on the hills of Bedfordview.
We will be investing to create a footprint in the commercial and retail sector of the Johannesburg Eastern areas and also setting foot in the door of the Modderfontein 'New City' (dubbed a 'smart city' and the 'new Sandton') business and development district, having been appointed commercial letting agents for currently the largest office park in the beginnings of the 'Smart City' area. In this regard our Greenstone office will be opening in January/February 2015 and will be positioned to capture this business.
Outlook for Year Ahead
Looking ahead to the year ahead, we anticipate that, nothwithstanding unexpected shocks, both on the global stage and in South Africa, it is likely that the prevailing market conditions will continue for the first six months of 2015, with high levels of buyer activity, significant shortages of appropriately priced stock and gradually increasing house price growth, against the backdrop of weak economic performance and a moderately increasing interest rate cycle.
We may even see accelerated house price appreciation off the back of increased stock shortages and increased buyer confidence. And, given affordability issues, which are a global phenomenon for aspirant home owners (in particular first time home buyers), we anticipate continued improvement in the buy-to-let market and the strength of the letting market generally.
The leisure market is already experiencing renewed interest and in the coming year we could be seeing the long-awaited genuine re-emergence of the second home and leisure market. In regard to the high end of the market, as the global economic recovery becomes more established, we anticipate seeing HNWI (high net worth individual or the über-wealthy) investors shifting their focus from the preservation of capital (cash, gold and fixed interest) to capital growth (equities, real estate and business interests).
Africa's Time Has Come
Significantly, Africa is forecast to register robust economic growth rates during the decade ahead, accompanied by some of the healthiest growth rates in individual wealth. For example, the number of dollar millionaires in Nigeria, Kenya and Angola is expected to double during this period. While PGP already operates in a range of African countries, markets we are currently focusing on are Uganda, Angola, Nigeria and Ghana.
In Uganda, we are involved in marketing a new upmarket marina golf resort development on Lake Victoria, comprising 158 villas and apartments with a championship golf course and hotel. With our ties to the homecoming market – and Homecoming Revolution, we will be targeting Ugandan diaspora in particular.
Growth in Hospitality Sector
In the hospitality sector, Pam Golding Hospitality reports extremely positive news. Following two years of strong double digit growth, the national 2014 year to date average RevPAR (revenue per available hotel room) growth as at the end of September 2014 was 8.3% compared to the same period last year.
The Western Cape has been outperforming every other province and recorded a phenomenal RevPAR growth of 19.2% for the first nine months this year compared to the same period last year. In addition, the September year to date average occupancy in the Western Cape grew by 6.8% while the average rate increased by 11.6% compared to the first nine months last year.
Cape Town's phenomenal international popularity is finding further traction into the Winelands, the Garden Route and Route 62. The acquisition of the Protea Hotel Group by Marriott earlier this year has sparked foreign direct hotel investment interest which is predominantly focussed on the Western Cape and Johannesburg with the United States, China and the Middle East leading the surge.
The interest and search is for existing underperforming hotels as well as for green-field opportunities. Cape Town is currently by far the most popular city in Southern Africa for new hotel Investment. We are aware off a 'pipeline' of 11 hotel projects in Cape Town with an estimated 2 102 rooms in total. Of the 11 hotel projects, eight are well advanced and three are at a feasibility stage.
These hotels are scheduled to open within the next four years, and if they all proceed it will create a collective investment in excess of R3.5 billion and create in excess of 2 000 direct jobs.
International demand for investment is increasing due to a favourable exchange rate with Europe as the key market, coupled with a sharp increase in enquiries and investment out of China.
Pam Golding Lodges & Guesthouses has thus far facilitated 56 foreign direct investment transactions with a total value of almost half a billion Rand. We estimate that in excess of 500 people are directly employed as a result of these foreign direct investments.
PGL&G is also to launch the Pam Golding Hospitality Partners initiative which will further enhance the unique integrated 'one stop' service concept that includes legal, accounting, tax, work permit, immigration and insurance advice.
Training a key differentiator:
As a group PGP continues to invest significantly in our agents and in the latest technological advances with the ultimate aim of constantly improving proficiency and service. In May this year, after many years of building on a vision to unlock the wealth of knowledge that exists across our vast geographical footprint, we launched Phase 1 of our first online training platform.
Geared to equip our agents to add value and provide a differentiated service to clients, today our online library incorporates nearly 200 short video clips, featuring over 50 of our own PGP experts, covering 80 topics. This makes training accessible to every agent in every corner of our PGP world, at any time.
If we say so ourselves, the material is nothing short of inspiring and the next-generation technology behind the fast delivery of this information, is simply quite remarkable. Take-up from the organisation has been enthusiastic with analytics revealing that we are regularly reaching in the region of a 1000 PGP agents through this modality, every month.
This project is without doubt a further differentiator for the PGP brand in that it underscores our commitment to providing professional, ethical service in all areas of real estate. In terms of live training, PGP continues to achieve the highest numbers in the industry. This year was no exception as registrations for training reached 4946.
Looking ahead, we are proud to announce the launch of the PGP Intern Programme to the PGP Group which will allow new recruits to the company to be guided through the process of the NQF4 and Logbook requirements to achieve their full status certificate.
