The following 5 pointers should leave even the most ardent pessimist with at least a sprinkling of doubt about the predicted “pending bubble which is about to burst”:

1. Property growth points 

Affordable housing Houses in the R300k price range were according to John Loos (FNB economist) selling rapidly and this is borne out by the 21,7% increase in affordable housing sold in 2010 compared with 2009. Many people are now downscaling and returning to areas where property prices are lower. Properties between R350 000 and R650 000 are attracting the most attention.

2. First signs of banks relaxing credit requirements 

Ooba (one of the largest SA bond originators) has experienced consistent month-on-month increases in bond application intake since the beginning of 2011. A gradual but continued relaxation during the last months in lending criteria by the major lenders is contributing to a rise in applications and approvals.

3. Lower interest rates and taxes

With interest rates currently at a 30 year low, improved affordability has enabled many would-be homeowners to take the leap, as the cost of servicing a bond has reduced considerably. The improved affordability, combined with a lowering of property transfer duty in 2011 (no transfer tax payable up to R600 000 and only R12 000 payable up to R1 million), has combined to make purchasing a property less daunting.

4. Growing black middle class

The demand in growth for housing in the coming years could outgrow GDP due to the emerging black middle class growing at about 200 000 “new members” per year between 2005 and 2010. It is to be expected that they will be spending a higher percentage of their disposable income on housing or accommodation than do the poor - driving growth in housing demand. This will add a considerable impetus to the SA property market once credit becomes more available - as residential sales volumes has for the last decade only been at about 192 000 transactions annually.

The annual spending power of the about 3 million black middle-class citizens (up from 2-million in 2005) was estimated at R237 billion in 2010 - down from an estimated high of R250 billion in 2008 according to Paul Egan, head of the University of Cape Town’s Unilever Institute of Strategic Marketing. The black middle class had a combined spending power of 34% of all the 34 million adult (above 16 years) South African consumers. Black South Africans represented about 30% of the applications for home loans in 2007, whites 60%, and Asian and coloured South Africans 10%. In a matter of only 3 years the power of the emerging black middle class became imminent when in January 2010 black South Africans accounted for about 50% of the applications, compared to 40% for whites.

According to the FNB Property Barometer, up to 50 000 people a month has since 2005 moved from the townships to the more affluent suburbs – where about half of the black middle class is at present living. In some markets (e.g. Midrand) in especially Gauteng where about 60% of the black middle class resides up to about 50% of buyers are at present black.

5. Price difference between new houses and existing houses

The quarterly price difference between existing houses (R991 758) and new houses (R1 497 831) was on 31 December 2010 at 51% at the highest point during the last 30 years. This will also put pressure on price demand inflation – as the cost of building inflation limits the addition of new stock onto the property market. The previous high point has been at the start of the last property boom, 31 March 2003, when the difference had been 45,9%.

The property boom’s capital growth has reduced the difference to -0,7% in September 2007 – roughly at the same time the capital growth boom period came to an end.

Question – will the 2010 SA property cycle be the same as in the 1980’s?

The 2 top ends of the SA property market cycle during the last 30 years have been 1981 and 2004 – leaving a 23 year period in between. The question on which the verdict is still out, is, whether the recovery since the lowest point on the house price growth graph (nominal growth of -0,32% in 2009) will take 5 years (up to 2014) as has been the case when it turned around in1986, or whether it will drop even further during 2011 / 2012.

The time span between the 2 lowest points during the last 30 years has been 24 years – i.e. 1985 (-7,69%) and 2009 (-0,32%). The period between the lowest point in the cycle (1985) and the next highest point (2004) has been 19 years. If one would apply these time frames onto the present, all things considered equal, it can mean that SA could experience the highest point of next property boom by about 2028. According to housepricesouthafrica.com, South African house prices grew in 1981 with 38.3% relative to 1980.

This is the highest growth of house in South Africa since ABSA house price records began in 1966. But 1981 was followed by a slump in South African house prices that lasted 4 years, before picking up again in the 5th year (1986). The 4th and 5th year after the peak (1985 and 1986) has been the two worst years ever. House prices declined -7.69% and -3.97% respectively before moving back into positive growth again.

Conditions have however changed for the 2010 cycle vis-a vis the 1980’s cycle. Not only are the population growth patterns different, but the democratization dynamics have sparked an economically empowered black middle class. The SA population grew by 65% between the 2 previous highest points of the property cycle (i.e. between 1981 and 2004). Population growth forecast for the next 25 years (2005 and 2030) is 13,8%. Although there will be less demographical growth pressure on the housing stock levels, the growth in the black middle class might just be the saving grace of the SA property market.