Buying for investment purposes may be nub of problem suggests property economist

On Monday property economist Francois Virul spoke to Kieno Kammies about the drop in property prices which has been particularly noticeable in Cape Town's high-end market.

Several studies and commentators have reported a decline in the country's property prices, but just how bad is it?

Virul says it is important to differentiate the market. he explains.

The residential property market as a whole is growing in value by about 3.5%, so just ticking under the inflation rate.

Francois Virul, Property economist - Urban Real Estate Research Institute UCT

There are big differences between regions such as Gauteng, Western Cape as well as the upper and lower ends of the market.

The drop in price of about 1% is being seen at the very highest end of the market such as the Atlantic seaboard and in particular the holiday homes.

Francois Virul, Property economist - Urban Real Estate Research Institute UCT

He says going back a few years to before the global financial crisis around 2005, property prices were booming, rising around 30%. That gradually came down with prices rising around 12 or 13% by 2015 and that has continued to drift down.

There are property cycles.

Francois Virul, Property economist - Urban Real Estate Research Institute UCT

People buying for investment purposes may be the nub of the problem, he adds.

Those buying those second and third homes in the hope of picking up those rentals, going into the Airbnb game, that is maybe where the problem lies.

Francois Virul, Property economist - Urban Real Estate Research Institute UCT

He says the real concern lies at the lower end of the market where property values are rising by about 12% and higher.

At that lower end, it is a very tight market.

Francois Virul, Property economist - Urban Real Estate Research Institute UCT

Investors are eyeing the lower end of the market, he explains.

They are saying well the higher-end of the market is not giving me the rentals that I am looking for, it is not giving me the capital flow. So then it becomes very tempting to invest in the lower-end.

Francois Virul, Property economist - Urban Real Estate Research Institute UCT

Listen to the interview below:


This article first appeared on CapeTalk : Buying for investment purposes may be nub of problem suggests property economist


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