Monthly Archives: January 2014

What Tourism Really Means to Real Estate

harcourts logoAmong all the exciting new statistics on South Africa’s burgeoning tourism sector, one number in particular should stand out, and that is the fact that this sector currently accounts for at least 10% of the country’s employment.

So says Richard Gray CEO of the Harcourts Real Estate group, who says this is the real relevance of the encouraging growth in tourism to the economy – and to South Africa’s property market.

“Quite simply, the real estate sector can only really expand when the economy is growing and more jobs are being created, and that is where there is a really important link between property and tourism.”

He says it is of course good to hear that foreign visitors who have been to South Africa on holiday or business have been so impressed that they have decided to buy a property here, or that the lower rand exchange rate is bringing overseas investors back to globally sought-after destinations such as the Atlantic Seaboard, the Winelands and the “Golf Coast” of the southern Cape.

“But our real hope should be that we can keep the tourists coming here in ever-greater numbers, as that will create more opportunities for South Africans to be employed and eventually become homeowners. Theoretically, doubling the current tourism figures could raise the country’s employment rate by 10% – and that would already give thousands more local consumers the chance to participate in the formal real estate market.”

As it is, the most recent statistics released by Tourism Minister Marthinus van Schalkwyk show that tourism now contributes some R70bn a year to the national economy, and that the number of tourists coming to SA has been growing by around 10% a year since the Soccer World Cup in 2010.

“Now when one considers that the current growth rate of the overall economy was estimated in November at just 1,9% a year,” notes Gray “the significance of tourism as a potential driver of job creation – and of spinoff growth in many other sectors – becomes even greater.

“However, we believe that in order to keep up the momentum and enjoy the downstream benefits of higher employment, those other sectors need to ‘pay it forward’ now by doing whatever they can to support and promote tourism either locally or beyond our borders.

“In our case, for example, being part of the international Harcourts group and interacting with potential property buyers all over the world gives us many opportunities to showcase South Africa as a destination. But growing local tourism is just as important at this stage as increasing overseas visits, and even small businesses can and should be finding ways to attract people to their own areas. They will undoubtedly benefit from doing so.”

Harcourts Achieves More Growth Than Most

harcourts logoIn a year when most of South Africa’s large real estate groups experienced an encouraging improvement in the residential property market, Harcourts has turned in a particularly notable performance, with the total value of sales in the group having shown a year-on-year increase of 29% at end-November.

According to property data company Lightstone, the estate agency industry as a whole achieved an 18% year-on-year increase in the value of sales, with 8% accounted for by higher homes prices and the remainder being due to a higher number of units sold.

“Harcourts results this year are thus well above-average,” says CEO Richard Gray. “Our average sale price increase across the group was 6,1%, so the bulk of our 29% turnover increase obviously came from a huge increase in the number of homes sold.”

Industry-wide, he says, the primary reason for more homes being sold in the past 12 months was an improvement in lending conditions and an increase in the banks’ appetite for mortgage loans. “In addition there is strong and growing demand now in the middle segment of the market, as evidenced by the stock shortages that are beginning to emerge in many popular areas.”

However in Harcourts’ case, says Gray, the trend was strengthened by the addition of 12 new offices to the group’s national network this year, as well as significant growth in agent numbers. “Agents are being attracted to Harcourts by our leading-edge technology offering, the Harcourts Training Academy and the fresh brand. The group is also attracting younger agents than the industry average for these reasons.”

And finally, he says, Harcourts has grown its market share in many of the areas in which it operates during the past 12 months, thanks to its leadership coaching and training, which is creating a strong group of business owners and principals with the knowhow and motivation to expand their businesses.

Currently the average selling price being achieved by Harcourts agents is R960 000, compared to an industry average of around R900 000. The group says the greatest demand it is experiencing is for homes in the R700 000 to R2m price range, which have accounted for 80% of total sales value in the past 12 months.

Debt Levels Will Put the Brakes on Price Growth

harcourts logoHome prices will rise in 2014 in the face of a growing shortage of stock, but increases will be tempered by affordability constraints, says Richard Gray, CEO of the Harcourts Real Estate group.

“A year ago, there was an oversupply of property, but this has largely been sold, especially in the metropolitan areas, and we are actually experiencing a shortage of homes to sell in many of the most popular suburbs,” he says.

“Demand is to a large extent being driven by the increasing number of first-time buyers coming into the market and freeing-up existing owners to upgrade or just move elsewhere. However, there has also been much activity in the past year at the upper end of the market, with high net worth individuals deciding that the time was right to acquire multimillion-rand properties before values really start to climb again.”

And, Gray says, the growing stock shortages will undoubtedly drive prices higher over the next 12 months, despite substantially increased activity on the part of developers. “Building input costs are high and – according to Absa – it is currently about 37% more costly to build or buy a new home than it is to purchase a similar pre-owned home, so even when a developer does add new stock to a suburb, it is likely to be priced at more than the surrounding homes and so have no depressing effect on local prices.”

However, he says, Harcourts does expect sales, and thus price increases, to be constrained in the coming year by affordability issues. “The current low interest rate cycle is of course aiding affordability, and the financial institutions do appear to have an increasing appetite for mortgage lending. “But household debts remain high, and this is limiting the ability of the banks to lend because existing debt commitments reduce the percentage of disposable income that prospective buyers have available to cover the monthly repayment on a home loan.

“And those buyers who cannot qualify for the home loans they want then either have to postpone their home ownership plans while they reduce their debts and save up a big enough deposit, or lower their sights and buy a cheaper property. Meanwhile, Gray says, the banks have no desire to see new homeowners find themselves in a negative equity situation – as so many did following the 2009 recession and property price collapse – so they remain conservative in their property valuations when granting home loans, and this is also acting as a brake on price growth.”