“All the Western and most of the Middle Eastern property markets have been hard hit by the downturn. It is only in Asia, India and the Far East that property right now remains a favoured investment channel - but it goes without saying that there are large unknowns and incalculable risks in going this far afield.”
Rawson has now just returned from a four week trip to the USA - and this has confirmed his negative feelings about investing in their property at the moment.
“I was asked by certain South Africans to check whether the rather gloomy figures coming back to us were warranted or not. Now that I have been to the USA I am fairly sure that it will pay to wait a year or two before moving into their residential property sector. The new R4 million per person per annum foreign investment allowance does open exciting prospects for diversification - but any step in this direction should be taken with great care as an overseas investment always carries a higher risk than a local one.”
In the course of his visit, Rawson went to two states - but in both, he said, he found the same scenario: homeowners and home investors had given their title deeds back to the bank and walked away, accepting their losses.
“This, of course, would not be possible in South Africa, but, possibly because the government is behind some of the biggest housing financiers, this behaviour is seen as acceptable in the USA.”
This type of action, said Rawson, had resulted in the drop of US residential property values, often being as high as 50%. Second homes and investments in the leisure market had been among the hardest hit, although in Hawaii the drop-off in values had been only 20%.
“In the case of the leisure market,” he said, “I was surprised to find that most of the fractional ownership, time share and outright buy-to-rent holiday accommodation buyers had from the outset expected no real return. People, it seems, had been prepared to buy simply to secure ‘free’ accommodation once a year, with the management company sometimes taking 60% to 70% of the rents just for looking after the property and the rest going in rates, taxes, levies and maintenance.”
Although there had been a big decline in tourism, said Rawson, the major shopping malls in the holiday areas, especially those in Hawaii, are still thriving, catering very often for Far Eastern, particularly Japanese, and Australian tourists. These centres, he said, are ultra-sophisticated and way ahead of what we can offer in South Africa, “excellent though many of our big retail complexes now are”.
Asked if, as in South Africa, residential rentals had not improved as a result of the drop in homeownership, Rawson said that it appeared that they had, but this had not yet boosted the buy-to-rent demand partly because, again as in South Africa, the costs of rates and services were also rising.
“As is happening here,” he said, “they are hitting the survivors in the affluent areas to help keep their systems afloat. I was surprised to learn that a significant number of municipalities are now technically bankrupt and have had to cut back on services accepted previously as every householder’s right.”
Obviously, added Rawson, the big question being asked is, “How long will this state-of-affairs last?”
“I have no clear answer to that question” he said. “All that one can say is that a full-scale recovery will not be seen this year and possibly not in 2012 either. It is just possible, that although the US economy is still five times as big as that of China, its government will never again be able to call the economic shots - and its housing market could remain in the doldrums for another three years. It will certainly take the banks and the large number of distressed home sellers that long to sell off the exceptionally large stock which is now waiting, and often waiting in vain, for owners.”
