Property 24 featured last Friday an insightful article on the South African real estate market in 2010.

Mike Flax, executive director of Redefine Properties, doesn’t see a recovery in 2010, since most people will still suffer from the job losses and expenditure cut-backs which the recession made essential.

Flas says that a general recovery of the property market is not to be seen until the end of 2010.   He predicts the recovery will be led by the residential sector.

Smart investors will be looking for reputable property at market related prices, like the few remaining Whale Rock Properties in Plettenberg Bay, which has been repriced recently to market-conform levels.

Now that all South African’s, also the most naive, realise that the residential property is really bursting, a second leak is appearing: the commercial property market is collapsing.

Read the full article in Nosweek this month.

People thought that prime apartments on the Capetonian V&A waterfront were a safe investment.
Wrong.  Dalene Visagie of Seeff, yes, the same Seeff which was shouting in April “Huisprijse sal nie daal” is literally spamming her address book with “urgent sales opportunities with +12% discounts on price reductions.  See below this 158m2 apartment in Faulconier of which the price was reduced from R7,5m to R6,6m.
Also Emelia VD Linde and Karen Miller, the once sales mavens of Seeff are now spamming their address books with massively discounted sales in Victoria and Albert.
The harsh deflationary reality of South African real estate  is slowly dripping in at Seeff.

And yes, the Reserve Bank dropped interest rates by 100 basis points today.  But this won’t stop the massive recession which is hitting SA (6,4% annualised decline in Q1 2009).  On the contrary, with the current loosening of Monetary policy and inflation targeting, an inflationary tornado could hit SA later in 2010, when oil prices surges again.  This will have a devastating devaluation effect on the South African Rand.

In April Seeff quoted in a newspaper article: “Huisprijse sal nie daal”.  We found this statement naive, lackig any solid argumentation and simply false.
And right we were, this recent article in the Mail and Guardian confirms that house prices in South Africa are further deteriorating and that prices are not to stabalise before the end of 2010.  The information is based on the FNB house price index.

Seeff: any comments?

Despite real estate agencies trying to convince you differently, real estate prices are further to drop in 2009 and only in 2010 will there be a slow improvement.
The year-to-year decline of property prices in South Africa was 15,3% and the consensus is that at leats a further 5% decline will happen in 2009:
“Price deflation for this year is thus still expected, and the FNB House Price Index average for this year is projected to decline by around 5%,” says Loos.

The SA home loan market amounts R 190 billion a year. In 2008 this activity dipped 30% and Market Beckett of Bond Choice projects this to further decrease through 2009, despite the interest rate decreases.

Dr. Johan Botha, economist of Standard Bank says: “The overall consensus from property commentators is that although SA may certainly not have seen the bottom of the curve yet.”

Saul Geffen, CEO Ooba, a mortgage bond originator, said last Friday that only last January prices went down 4,8% and confirmed this pattern will continue for the rest of 2009.

The Daily Mail reports on British model Caprice Bourret being crashed by her 2006 South Africa real estate developments.  At that time she bought a house in South Africa because she was launching her lingerie range there.  She bought the house in Bryanston for a price of £300,000  and spend £400,000 making it twice as big.  She paid it cash at the time. It is now on the market for 5,3 million SAR ( £373,000).

At that time (start of 2006), the Rand stood at 9,5p; it lost 25% since then.  So; even when the price of her house would have remained the same (which it didn’t, it tanked significantly, see above), she would have lost already £250,000 through currency losses.

The Daily Mail writes:  Factor in a 20- 25 per cent slump in house prices and the value of her investment has nearly halved. ‘I know it’s a bad idea to sell at the bottom of the market,’ she says with a moan. ‘ But I am pulling my business out of South Africa and I have no more need of that house. ‘I could hold on to it, but in my opinion it’s going to take years before the market recovers and renting it in the meantime is a risk – and there’s a much higher chance in South Africa that tenants may trash it. It seems best just to swallow my pride and cut my losses.’

Good choice, Caprice, the South African real estate market will take years to recover and the massive current account deficits which keep on building up in SA will keep eating at the currency rate.

The article in the Daily Mail continues:

Darryl Trapido, owner of RJD Properties in Johannesburg, says repossessions are gathering pace and affecting roughly 20 per cent of homes on the market valued under 750,000 rand ( £53,000). ‘Many homeowners took out mortgages at ten per cent two or three years ago,’ he says. ‘Now interest rates have shot up to 15 per cent and they can’t afford the increase.’

Update January 29: our friends of soplett have a great coverage on the “coming together” project; read especially this comment of Iain.

The coming months we’ll be covering extensively the (master)plans of the Bitou municipalitywhich will completely upgrade Plettenberg bay.  The project has been named “Coming Together” and has as ambition to do something about the apartheid-style town planning problem.  More than 56 projects are involved and phase 1 involves a budget of R66 million.

The full presentation can be found here: Plettenberg Bay Coming Together presentation.

Rumours are the Middle Eastern parties are eying to take (massive) stakes in Plettenberg property.  However, acting municipal manager Carl Mattheus didn’t go into that on a public hearing last December.