Bank confidence drives property market boom

| Friday April 16, 2010 00:00

 

Stronger credit support to prospective property owners and developers is underpinning the prevailing boom in purchase and rental property prices, analysts have said.

According to Bank of Botswana statistics, banks advanced a total of P434.6 million in loans and advances towards property for individuals last year, down from P521.8 million in 2008. However, total property loans and advances outstanding to individuals stood at P2.54 billion by the end of last year, marking the rapid growth of mortgage credit in Botswana since 2004.

Prior to this, mortgage finance was predominantly sourced from statutory lending houses such as the Botswana Building Society, Botswana Savings Bank and National Development Bank.

Since the beginning of the year, credit support for property purchases and development has been rising, mirroring the boom in property purchases and rental values. In January, commercial banks extended P19.1 million to individuals towards property purchases and development, kick-starting a strong year for property.

This week, analysts told Mmegi that while banks were generally cautious about extending any form of credit during recession-troubled 2009, confidence - supported by stronger economic fundamentals - was slowly returning to the market. The result, analysts said, was that stronger demand for purchases and rental property far outstripped available supply, further pressuring prices.

A Premier Properties' official said demand for property was rising sharply, driving property prices, while banks were leveraging off strong property fundamentals and the recovering economy in their decisions to support the sector.

'Banks have eased off their cautious approach to credit,' the Premier official said. 'More people are coming through searching for property to buy, and they cannot do this without credit from banks. Basically, property purchase and rental prices are being driven by the huge demand we are seeing. Sellers are coming to the market, but at much slower rates than buyers. There are not many property construction projects taking place and thus we expect the higher prices to continue rising and the trend to hold.'

He said because of its strong fundamentals, property had emerged as the investment vehicle of choice: 'If you buy a house or any other property, the value of this investment rises rapidly. Low-cost houses were ranging between P200, 000 and P300, 000 last year, now they are about P400, 000. Property is such a sound investment that even if you buy today and sell within a year, you will still make a profit.'

Willy Kathurima property consultant, Eddie Mdluli, said the property market was largely insulated from the cooling off credit during the global recession, as evidenced by the growth of the industry. 'The credit situation is now far better,' Mdluli said. 'People are coming through saying the banks are calling them for credit. Competition among banks to provide property credit is rising again.

'The industry itself is witnessing rising prices as homeowners are taking advantage of the shortage of housing. A medium-cost house that used to rent for P2, 000 last year is now going for between P2 500 and P2 700 because there are few properties available. It's the same thing with property purchases, though here it's a bit tricky because there are valuations and these limit the extent to which the seller can hike his price.'

The Managing Director of Rach Properties, Wanano Chilisa, said demand for property was being strongly supported by banks. Rach Properties conducts regular property auctions as well as sales. 'At the high end of the market, we don't get many enquiries,' Chilisa said. 'The low and medium-cost properties enjoy strong interest because people are financed through banks and most of them qualify for credit of up to P750 000 or P850, 000, which is the medium-cost range. You can get a buyer within a week if the house is within that range.'

He said thus far, the highest property auctioned was for P750, 000, which was partly because the market is surfeit with high-end (P1 million and above) houses and also because property sales are generally low at the beginning of the year. Last year, Rach Properties' highest sale was P1.2 million.

'This year is a very positive one for property and I'm looking forward to the next eight months,' Chilisa said. 'At the beginning of the year, people don't buy, but starting from this month, I am already receiving 50 calls a day from people wanting to buy property. The other agents are also receiving the same. The trouble is that there are not enough houses or land.'

He said the property market's fundamentals would remain strong for the foreseeable future as Gaborone was a fast growing city, and the rising population would continuously push prices higher when juxtaposed with the near-static properties available.

'Rent will always go higher,' he continued. Usually, homeowners raise rentals by about 10 percent annually. In addition, buying a property is an investment and there comes a point where you should start thinking about capitalising on that investment. If I have a house for rent and I see that demand is high, it goes back to demand and supply. Afterall, the investment needs to make a return.'

Economic experts expect the property market to slightly cool off in the medium to long term as property development narrows the supply/demand gap.