The best hope for the beleaguered South African residential market right now is robust investor activity, according to Auction Alliance CEO, Rael Levitt.
"We've been saying for years that residential property investors looking for rental yields will boost the market, as has occurred in the commercial property sector".
In the current low interest rate environment, investors have a historic opportunity to access a cheaper housing market, which is at the moment seeing a surge in rental demand.
SA is under-housed and this factor is anticipated to last for decades. This means that unlike the USA and North Atlantic, we will never have empty houses because tenants will be queuing around the block to acquire rental accommodation, he explains.
According to an internal survey conducted by Auction Alliance, the investor share of home buyers at auctions grew by 9.6 percent in July, the highest level in a year.
While the investor share is naturally high in distressed markets through auction sales, it may be falling overall in other sectors of the market.
South Africans are used to strong capital growth in residential housing and investors bought into houses when they saw immediate price growth. Now, investors are able to buy houses and get higher returns than the prevailing interest rate, and are in fact huge contributors to clearing distressed inventory, Levitt says.
He adds that the inability of most investors to resell homes at immediate profits, in the current housing environment, has put a damper on their participation in the housing market this year.
With accelerating rental demand in SA, and increasing rental rates, you would think investors would want to get in more not less.
However, it seems investor mentality is still rooted in the sale of the final payoff or the sale of the home, and not the monthly dividend potential from rent. Investors are clearly being influenced negatively by the increasing warning bells from economists.
Levitt anticipates housing sales activity to weaken along with the overall economy due to a renewed decline in business and consumer confidence and a softening employment trend.
"One exception is the rental housing market, because in a market where access to funding is difficult, many would-be purchasers cannot get bonds and are forced to rent, in turn increasing rental demand."
He points to rising new delinquencies of large property developments for his double dip housing forecast.
"The weaker economy and rebound in the unemployment rate are taking their toll on the housing market".
As housing numbers turn more negative, refinancing schemes, business recovery in terms of the new Companies Act, bank settlements and assisting defaulting debtors, are gaining increasing traction.
He says they have been advising banks to embrace residential investors and use them for the value, so they can offer to mop up distressed housing inventories.
Consumer sentiment has shifted to renting and this presents great opportunity to these investors. This is not a permanent phenomenon, but will hang on until the market is firmly rooted in recovery.
“This is a prime time for investors, with the help of banks, to put a bottom in housing", says Levitt. – I-Net Bridge
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