The official property market in South Africa is expected to have a total return of an annual rate in the area of 15%. This is the predicted rate for the next three years, based on the strength of stable property fundamentals, consistent average income growth and currently low vacancies.
Len van Nierkerk, Old Mutual Investment Group SA's head of quoted property, stated earlier this week that the optimistic outlook was based on the fact that income growth has averaged 12%, at the same time income yields held steady at 8.5%. He went on saying, "Property fundamentals are still good. There is some softening that has come into the economy and we've seen GDP forecasts being revised downwards. That will probably lead to some softening in demand for (property) space."
Although a softening of the market may appear to be on the horizon, the relatively low amount of vacancies within that sector may have enough of an affect to reduce the left of any possible market softening. Listed property companies have generally been able to lease nearly all their inventory and any new construction adding to the housing supply are slow coming. The lag in construction due to increased property prices and cost of materials continues at a relatively slow pace so the supply will remain tight for some time. Nierkerk added, "I don't see any immediate short-term risk of supply outstripping demand."
The general consensus is that normal merger and acquisition activity would continue and help lift up the markets across the board. Coupled with an increasing number of developments in surrounding areas such as the Moot area of Pretoria and Worcester, South African cities are growing rapidly. In spite of higher interest rates, the demand for housing in the price range between R650 000 and R980 000 actually started increasing during the fall season in 2007.
Many interested investors are coming from the eastern suburbs of Pretoria where prices are much higher than other, less developed areas such as Moot and Worcester. With the making of a stable property market boom on the horizon, South Africa's developers are quite optimistic.
