Grahamstown property owners and estate agents have Rhodes students to thank for the fact that the city has bucked national property trends, say local estate agents – but things could change as safety concerns and more on-campus accommodation threaten to make the traditional student digs a thing of the past.
Grahamstown property owners and estate agents have Rhodes students to thank for the fact that the city has bucked national property trends, say local estate agents – but things could change as safety concerns and more on-campus accommodation threaten to make the traditional student digs a thing of the past.
Despite interest rates being at their lowest in more than 30 years, South Africa's residential property market is expected to tread water this year as high levels of household debt, tepid economic growth and risk aversion by mortgage lenders keep a lid on house prices.
According to Absa, based on its national house price index, home values in the middle segment of the market – that's the category most Grahamstown West homes fall into – rose 6.8%. It's not as good as it sounds, because in real terms, i.e. adjusted for inflation, that drops right down to 2.4% – a decline of 6.9% from the previous year's figures.
And predictions are that things won't get much better this year: Probably around an inflation-adjusted 3%, say economists. But in Grahamstown, unlike most other centres in the country, there is at least still a demand for houses.
Reg Rumney, Rhodes University's Department of Journalism Economics Journalism lecturer, said house prices nationally were under pressure. "The housing market is affected by several factors – economic growth, interest rates and availability of finance," Rumney said.
"At present, economic growth is quite slow and real interest rates are low. When interest rates fall as steeply as they have, we normally see a surge in house price growth – but people are still recovering from the debt binge and the global financial crisis,'' said Rumney.
Grahamstown, however, had a special ingredient in its economic mix, said Rumney. "The city, like Stellenbosch, has a high demand for rental accommodation for students."
Daphne Timm, principal at Pam Golding in Grahamstown, explained how property in the city had bucked the national trend. "We do have a unique market – so we do not completely follow national norms. We do not have a complete oversupply of homes,” said Timm.
She said they had experienced an increase in demand for properties. “We have had a bigger demand for properties in this specific market, and less supply than in the higher price brackets. This finds us, in Grahamstown, with a year-on-year growth of around 11% over the past year.”
She predicted, however, that estate agents would be looking at a tighter market this year. “People are tightening their belts and are still cautious, following the economic melt-down of the past 18 months. When the market tightens up, we see serious sellers needing to get prices in line with the market."
Rumney agreed that people had now become far more cautious, having been hammered when interest rates rose, and South African households had high levels of debt. In addition, it had become harder to get a home loan in the wake of global financial crisis.
"That, along with the National Credit Act, has had a major effect on finance and banks have become very cautious about who they lend money to. Often a person will get a buyer – but the buyer will not get a loan," said Rumney.
Lew Geffen Sotheby's International Realty managing member, Steve Birt, had a slightly different take on how national property trends, and the global financial crisis, were reflected in the local property market. Prices were stable, but fewer houses were sold, he said.
During 2005, Birt said, 62 freehold properties in the Grahamstown area had been sold at an average price of R842 529. In 2008, 37 houses sold at a R822 640 average and in 2010 there were 36 properties sold at an average of R832 000.
"This clearly indicates that prices in this segment have more or less remained the same through these five years – but the volume of sales has basically halved from 2005 to 2009," Birt said. "It also shows the impact of the overall downturn in the property market, in that the average dropped by 3.4% from a high in 2006 to the low in 2008.
"The fact that the unit sales have increased by 28.6% from 2009 to 2010 tells me the property market is climbing out of a slump and is heading towards normal activity," said Birt.
Birt does not support the prediction of some economists that despite low interest rates, there would be more sellers than buyers this year. "In Grahamstown, we have a shortage of saleable stock, because while there may appear to be a lot of stock available, much of it is over-priced and therefore slow to sell."
For freehold properties in all of Grahamstown and across all price brackets, Birt said, in 2006 there were 561 properties sold, 606 in 2007; 585 in 2008; 257 in 2009 and 263 last year. In unit terms, sales had dropped by about half. While buying to let has traditionally been the bread-and-butter of landlords and estate agents in Grahamstown, the nature of this market is changing in significant ways.
"Students are migrating from traditional digs to secure flats," Birt said. "Flats are also selling well to parents of students who want to know their children are in a safe environment." Rumney also pointed to new developments on the university campus.
"A lot of new student accommodation has been built in Grahamstown, and this might lead to oversupply at some stage," Rumney said. On Thursday, the South African Reserve Bank monetary policy committee left the Repo Rate unchanged at 5.5%.
