Rates sting but don't bite

Posted On Friday, 26 April 2002 10:01 Published by
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Speculators are pulling out of golf estates and some investors are selling flats to take profit

Speculators are pulling out of golf estates and some investors are selling flats to take profit. A few popular developments that had buyers lining up are beginning to advertise again.

Is SAs house boom going bust?

Probably not, say industry spokesmen, but rising interest rates are beginning to squeeze parts of the market. There are still more buyers than sellers in most suburbs and price ranges, though the number of visitors to Sunday show houses in Johannesburgs northern suburbs has fallen from an average of 40 only a month ago to 15, say agents.

Durban is not yet affected, notes agency head Keith Wakefield: We have a critical shortage of stock and prices continue to rise. Buyers in new Cape Town developments are trying to fix interest rates over the next year and landlords are pushing up rents to recover higher mortgage costs, says Bill Rawson. But the core market of suburban homes is still booming.

Some of the evidence seems contradictory. This is typical of a market as imperfect as residential property that does not have a stock exchange.

Pam Golding Properties Gauteng MD Ronald Ennik says sales in the R3m-R5m range are stagnant. But Lew Geffen of Sothebys Lew Geffen complains that the market is overheating: Our average selling price has risen in a few months from R700000 to over R1m.

Pockets of investors are now guessing that rates will rise substantially and push down prices, so they are pulling out, says Ennik. Enough of them could turn this into a self-fulfilling prophecy.

Neville Schaefer, CEO of National flat managers Trafalgar, warns investors not to overpay in this market. The trick is to time purchases just before sentiment turns towards falling rates, he says, and then negotiate aggressively to get a few bargains. They can then turn this period into an opportunity for capital gain.

But Schaefer, Ennik and Geffen agree that as soon as the market thinks interest rates are about to drop, the boom will bounce back.

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