State of the Market Current State of Affairs in the KZN Property Market

Welcome to "State of the Market", a review of the property market in KZN. Hunters Managing Director Nash Cohen takes us through the recent history of the area in terms of growth and sustainability in the property market. Nash has been involved with property both with development companies and estate agencies in the UK and South Africa. His approach therefore is balanced by his extensive experience in two vastly different economies. What he finds surprising though is how trends repeat and cycles form, regardless of which economy one is looking at. He sees these trends and cycles in the property market following a repetitive pattern here albeit within the different economic constraints of South Africa.

For the last three years the Kwa-Zulu Natal (KZN) property market has enjoyed almost unparalleled growth repeatedly outperforming other provinces as an investment destination. The reasons are clear, the Province for some time had lacked a variety of factors necessary to maximize growth. For one there was a lack of national and international marketing focus on the Province, reasons given are varied.

Due to the level of international business activity, Cape Town and Johannesburg were initially thrust into the spotlight in South Africa, resulting in a mass of foreign investment which then permeated into the property market in those areas. Any injection of external equity inevitably leads to a consequent uplift in the value of an economy and provincially this was evident...

This was surprising considering Durban's importance as a large container port. Yet Durban and KZN did not flourish and develop at the same rate as its provincial rivals.

Kwazulu Natal... a well kept secret for too long ...?

Not only is the year round sub tropical climate a major attraction, but so too were the wonderful beaches, wildlife experiences and the mighty Drakensburg. The fact that KZN was predominantly an English speaking Province (as opposed to Afrikaans) and that it enjoyed a varied multi cultural mix were added bonuses for the international (and national) investor.

Investment came in a variety of guises ... The Point Waterfront Development; Gateway and Umhlanga; The La Lucia Office Park; Sun Coast Casino; Sibaya Casino; The Midlands Mall; the Dube Trade Port. All R1billion + investments, and further major projects are being undertaken continually. This has resulted in a subsequent property boom as the Province has hurriedly caught up with its previously higher value neighbours to the West in the Cape and to the North in Johannesburg.

Areas such as Umhlanga, Mount Edgecombe and Ballito have enjoyed significant growth. This spurred on and led to a plethora of residential development activity in these areas serviced by the successes of the infrastructural upgrades and various blue chip investments. The residential developers- both small and large scale benefited massively as sales continued to be strong and development upon development achieved record sales. The bullish nature of the market was attracting a number of investors and speculators into purchasing units ...and this continued to allow land owners to release large tracts of land for sale whilst charging ever escalating premiums.

"The state of the market is totally dependent on supply and demand ... so at some point, the market will always readjust."

The continued buoyancy of the market resulted in beneficial job creation at all levels.

The state of the market is totally dependant on supply and demand. Average wage increases - whilst healthy could never compete alongside the growth in the property market.

Markets do not move in straight lines-they peak and trough- as long as there is market activity, as long as they continue to trade, the market will not be static.

In a developing economy like South Africa this is especially true. For the first time we have a large and expanding middle class and a commercial nature to the economy which requires that people will always need to move, hence there will always be a need for housing.

For the last three years the KwaZulu-Natal property market has enjoyed almost unparalleled growth.

However we may be currently experiencing an element of over supply in certain levels of the property market in KZN, especially on the North Coast. That is not to say if a good value development is released in an active market (such as the lower to middle range) it will not sell out as it can and sometimes very quickly.

The difficulty is that to qualify for a purchase of 2 million one needs a monthly income (combined) of approximately R 70,000.

In my opinion the market continues to be buoyant and bullish in certain sectors, despite talk about a hypothetical crash. At present there is no evidence for this to occur. One must not confuse a bad investment, i.e. where a developer has a large amount of unsold stock, with a property crash. There are certainly levels where this may occur but lenders and banks will be quick to identify the lack of property sales in these areas and perhaps assist to adjust the parameters of their lending.

At present there is far too much commercial activity within the economy, which certainly does not provide support for an impending "crash" or "bubble".

Courtesy Nash Cohen Hunters MD