Property boom to gain momentum.

Posted On Wednesday, 02 July 2003 02:00 Published by
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Property boom to gain momentum.

South Africa's property market, already booming, is poised for further acceleration in the coming months as the combined influence of five factors, all individually capable of boosting property sales, hit the market almost simultaneously, according to market participants.

"Property sales will leap as increased spending power surges into the market," predicted Niël Cronje, managing director of realty company Engel & Völkers South Africa (E&V). "Five factors will drive it.

"The interest rate has dropped by 1.5%, and a smart bet is that it will drop by at least another four percentage points before 2004. Along with the interest plunge is the likely devaluation of the rand against major currencies, as international speculators will pull their money out of South Africa and chase higher interest rates in other countries.

"Then there is the 10% increase in public servants' salaries. Finally we have the increased liquidity sloshing around as people that took rands out of South Africa use Finance Minister Trevor Manuel's amnesty period to repatriate them legally.

Each of these, even in isolation, would drive the market; but combined the impact will be awesome."

Cronje believed the repatriated rands could flow into upmarket property investments, including game farms, wine estates, residential golf courses, and houses in desired areas, such as the Atlantic Seaboard in Cape Town, and along the Garden Route.

"The returned cash is unlikely to flow into the stock exchange, which research shows that, as an investment, has performed well below property over the past few years. Upmarket real estate is a natural choice, so much so that we should consider nominating Trevor Manuel as property salesman of the year."

Reserve Bank Governor Tito Mboweni should also be line for an award, added Cronje. While many economists wanted a 2 or 3 percentage point cut in the interest rate, the accepted wisdom was that Mboweni would not budge below 100
basis points.

By adding a half percent, he gave the country a clear indication that he listened to the business community's plea to bolster the economy.

Pam Golding Property (PGP) CEO Andrew Golding concurred with Cronje's boom prediction, but believed that of all the factors in play, the interest rate would be the strongest in fuelling it.

"It's not so much about knocking a few hundred rand off a bond, but the sentiment that surrounds it," he elaborated. "An interest drop lifts people's spirit, and buying a better house can be part of it.

"Nor should we forget that with a drop in interest the rand might well weaken. This would strengthen overseas interest in South African property as an investment.

However in hindsight we never saw a weakening in the rand's exchange rate, even with the rand coming down from close to 20 rand to the UK pound, to around 11 rand, and now back to 12 rand."

E&V's Cronje confirmed that overseas buyers were still eager to invest in South Africa.

"We have nearly 1,000 associates all over Europe and in the US. Interest in South Africa is at an all-time high but the feedback we are getting from our partners indicates a sagging rand will have a powerful gearing effect on the sales," he concluded.

Publisher: Lynn Bolin
Source: Lynn Bolin

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