Aug 03 2011

SA’s property bubble – a rejoinder

Published by at 9:20 am under South Africa,Top Stories

On 26 October last year I wrote about South Africa’s property market (here) and suggested the country was sitting on a huge price bubble, which is slowly and quietly being deflated by the party who caused it in the first place – the banks.

This bubble deflation process may take another few years. By the time the bubble has deflated, SA’s residential property owners will be looking at average nominal prices 20% to 40% below their October 2010 level, I suggested.

Now confirmation of this view has come from property expert Erwin Rode. Look at this article of his. It confirms that banks are forcing prices down with a much stricter loan extension policy. And it confirms my view that prices are in for a long decline. How long and how steep, he doesn’t say.

Now, if residential as a sub-section is in for a nasty drop, then prices of holiday homes (second homes on the coast) must be in for a super-nasty, double-whammy.

Finally, foreign buyers and their role in the bubble: I know experts have maintained the role of foreign buying in the steep rise in SA prices in the past decade was minimal. I am of a different view. I think foreigners played a huge role in inflating home prices between 2002 and 2008. Until Zuma came into power.

And, in coming years foreigners will play a huge role in bringing prices down again as they sell and leave.

Why? South Africa under Zuma is a very big turnoff to Germans. That I know. And Germans have been the dominant group in this episode.



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