The world of real estate spin
If you stay abreast of local current affairs, you will most likely have encountered the term 'spin doctor' before. The term is usually applied to the spokesperson of a senior government employee, but can just as easily be applied to marketing and public relations professionals in any number of industries. In essence, a 'spin doctor' is an individual who has mastered the art of 'spin', or in layman's terms, the creative representation of fact.
The online information portal Wikipedia defines spin as: "A heavily biased portrayal in one's own favour of an event or situation." The website goes on to describe how the term has slightly different connotations, depending on whether it is used in the political or marketing sphere. Traditionally, the PR function relies heavily on the creative presentation of fact, whereas in politics, 'spin' is inevitably a "disingenuous, deceptive and manipulative tactic".
We were browsing through a recent release by a real estate group trumpeting the stellar performance in the top-end of the property market, when it occurred to us that where 'spin' is concerned, the real estate guys are second only to politicians.
Keeping a brave face against all odds
Regardless of how much gloom and uncertainty hangs over the property market, the real estate profession always finds something positive to shout about. If the industry as a whole comes under pressure, they simply divert the private investor's eyes to the section of the industry which is performing well.
Hence Pam Golding's latest release claiming 'boom-times' in the top-end of the local property market. Of course the group provides a list of impressive property transactions in support of their claim.
Pam Golding's agents have completed some impressive multi-million rand deals in the last three months. Successes include the sale of an R18.255 million home in Clifton's Nettleton Road and fetching R13.5m for a vacant plot in the same road. A property in Ravine Road, Bantry Bay went for a substantial R12.775 million and two others in Bishopscourt topped R17 million each. The group also announced that a bungalow style home in Blouberg fetched a record price for the area of R16.5 million. We are quite sure the top-end market in Gauteng and KwaZulu-Natal is recording equally impressive numbers...
But can we really view these property sales, occurring in a niche section of the local property market, as evidence that things are going well in the property market as a whole?
Social and economic realities paint a different picture
The market for residential property is no different to any other. It is driven by the basic economic principles of supply and demand. A quick look at the supply side reveals a glut of housing units in many price sectors. This overhang can jointly be ascribed to profit hungry property developers who have been greedily upping production through the real estate boom and over zealous real estate investors who are now disillusioned with the rental yield on their investment portfolios.
At the same time, the demand side is suffering under a number of significant economic developments. Key amongst these is the 250 basis point hike in interest rates which have made bond repayments less affordable to the man in the street. When you add the stricter rules and regulations implemented in the National Credit Act you will understand why the demand side factors seem to support a slight slowdown in the property sector.
The large banks who are responsible for the majority of South Africa's residential property loans have already reported a slowdown in the growth rate for the middle segment of the domestic housing market. Where demand remains extremely strong is in the segment for small and entry level houses below R750, 000. And it seems the demand is strongest for housing that meets the social needs of the poorest South African citizens.
Some steam left barring catastrophic events
We still believe that the correct property investment will reward the patient investor. The current 'tightening' of monetary policy by the Reserve Bank will ease with time, and we will eventually return to a stable or decreasing interest rate cycle. What we are worried about is the possibility of a catastrophic event such as the total meltdown of our Northern neighbour, Zimbabwe. Our government has already indicated their unwillingness to get involved, and seems intent on sitting on their hands as thousands of Zimbabwean refugees simply stream across our border. The current stance does not bode well should Zimbabwe collapse completely.
In summary, we support Pam Golding's contention that the top-end of the residential property market is buoyant. But at the same time we point out that in terms of number of transactions, this segment of the property market is miniscule. The average property investor would rather hear positive news about his 'average' home in the R1 million price class, than great news about properties in the R10 million plus bracket.
Editors thoughts:
Dominant players in the home loan market believe that the property market for residential property will continue to flourish in coming years albeit at slightly slower pace than that recorded over the last five years. Do you think we will experience a severe downturn in the residential property market or will house prices provide real returns over the next ten years? Send your comments to [email protected]
