SA property boom over?

Most industry commentators say that the bottom end, priced below R500 000 - most notably, townships and inner cities - and the top-end, priced above R10m, offer the best returns for investors over the short term.

In fact, housing reports released in recent weeks indicate renewed strength in both those price bands. Trafalgar's 2007 Inner City Report shows that investors in the Johannesburg and Pretoria inner cities are seeing strong income and capital growth as the move back to CBD living gains momentum and more developers get in on the office-to-flat conversion trend.

Trafalgar MD Andrew Schaefer says investors can still pick up newly converted apartments for less than R500 000 in the Jo'burg and Pretoria inner cities at gross rental yields of around 11% to 13%. That's double the income return of around 6% that investors have to be satisfied with in upmarket, leafier suburbs.

Township property markets are also still booming. Earlier this month Lightstone Risk Management brought out SA's first township housing index, which showed that township property prices were up 39% in March (year-on-year).

Double-digit rates

FNB property strategist and economist John Loos says although township markets come off a low base, all indications are that growth is still on an accelerating path.

Loos says the impressive performance of township housing markets is a sign of the times. Price growth and demand aren't only driven by affordability issues but also by upgrades to township infrastructure, including the advent of large shopping centres that are transforming townships from dormitory towns into more mixed use economies.

Loos believes that future growth will be underpinned by a relative shortage of new stock in and around townships. He also expects lower priced suburbs in traditional white areas to continue to outperform middle to upper priced areas, as affordability issues shift demand towards the cheaper end of the market.

Loos expects the market priced below R500 000 to continue rising at double-digit rates for the next year or two, while the overall housing market is likely to dip below 10% by first quarter 2008.

Loos says an interesting trend is that growth at the luxury end of the market has accelerated in recent months, suggesting that sector could be gradually turning for the better.

Plenty of room for catch-up

Pam Golding Property group CE Andrew Golding supports that view. There's a general notion that SA's luxury housing market is undervalued in global terms, says Golding.

And given that premium properties in top suburbs such as Clifton in Cape Town are still selling at a discount of as much as 50% to top-end areas in London or parts of Europe, there's still plenty of room for catch-up.

Alliance Group CEO Rael Levitt confirms that there's no sign of demand waning for big-ticket properties. "Ironically, there's a shortage of luxury homes. There's only that much stock available in your Cliftons and Zimbalis."