Residential property market still ‘safe as houses’

Confidence in investing in residential property has been shaken in recent years by the subprime mortgage crisis, the global economic recession, and all the talk around future property rights, expropriation and property valuations. But latest data indicate that, for now, the SA residential property market is "safe as houses".

The conviction in the stability and certainty of investing in residential property was shaken for many during the subprime mortgage crisis of 2008 and the subsequent global economic recession. In addition to this, perceived uncertainty around future property rights has been fuelled by the discussions on the expropriation and property valuation bills. Understandably, many potential property buyers are still sceptical. But it seems for now the SA residential property market is still "safe as houses" and there are encouraging signs in the data that indicate that it should continue to be so for the foreseeable future.

The first guiding light is that the SA residential property market is still comparatively undervalued. Lightstone values the formal residential property market at around R4trillion, close to the country’s GDP and about 40% of the total market capitalisation of the JSE. In comparison, the residential property market in Australia is valued at A$5,2trillion — according to RP Data Australia — which is more than three times the country’s GDP and 340% of the market capitalisation of the Australian stock exchange. SA properties are still relatively cheap compared to most other international markets and this is amplified by the weaker exchange rate.

A second encouraging sign is that activity is picking up. Lightstone tracks the number of transfers (including the number of new registrations of residential properties) and there is no doubt that the market has slowly gained momentum in the wake of the 2008 recession, as seen in the graph.