News: South Africa's coastal quandary

Tue, 25 Sep 07

Residential coastal property in SA has come under severe pressure and is now experiencing far more volatility than property inland, reports MySouthAfrica...

According to Lightstone Residential Property Price Indices, higher interest rates and high prices have contributed to a major slowdown in price growth at the coast.

Lightstone Risk Management MD Anthony Miller said coastal belt residential property, which includes property within 500m of a beachfront, recorded a massive 64% increase in prices year-on-year in November 2004. This compared with the non-coastal inflation rate peak of 34% year-on-year in February 2005.

But the coastal belt inflation rate had plunged to 4,2% year-on-year by December last year, while inland residential property still showed solid growth of 20,3% year-on-year for the same period.

Miller said that while he expected coastal property prices to be more volatile than those inland he was "surprised by the magnitude of the volatility".  He said

many coastal properties were "leisure properties" and were the first to be sold when interest rates rose.

"As a result supply exceeds demand, whereas inland properties, because they are usually primary residences, experience far less volatility," said Miller.

Possibility of massive sell offs?

John Loos, property strategist at First National Bank, said the coastal belt areas "took a little bit longer to get going at the beginning of the property boom", but then "sky-rocketed to a year-on-year inflation peak of above 60% in 2004".

Loos said that, since then, the inflation rate had dropped dramatically and that, on a month-on-month basis, actual property prices were coming down in some coastal areas.

"It would appear the coastal region is far more volatile than the inland regions and I think it is because a lot of property along the coast is discretionary buying," said Loos.

But he said his gut feeling was that there were not "massive sell-offs" of property on the coast but it was rather a case of new potential buyers holding back to see what interest rates would do.

Lightstone reported that while house price growth slowed last year, it was "still growing significantly faster than other major residential property indices suggested".

Lightstone said that after recording 33% in 2004 and 2005, the residential property market's price growth declined to 24% last year. Other indices available from SA's major banks put price growth for last year at about15%.

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