4 to 5 Months to Sell Upmarket Property in South Africa

4 to 5 Months to Sell Upmarket Property in South Africa

If you own a property worth more than R1,2m that you have to sell now, be prepared to wait at least four and a half months to flog it. There is also an 85% chance that you will not get your asking price.

These and other statistics released earlier this week by FNB again underline just how difficult trading conditions in the SA housing market have become. According to FNB’s Residential Property Barometer for second quarter 2008, more than 80% of all properties now remain on the market for an average four months, up from an average three months in first quarter 2008. At the height of the property boom towards the middle of 2004 it took only six weeks for the average property to sell.

Lower priced properties of less than R700 000 are still finding buyers within an average 11 weeks. However, more expensive homes are becoming increasingly difficult to sell, with homes priced above R1,2m sitting on the market for 18 weeks on average.

FNB’s research, which is conducted on a quarterly basis among 150 estate agents, also shows that the percentage of properties sold at less than asking price rose markedly over the past year – from 70% in second quarter 2007 to 85% a year later.

FNB’s data supports the general view that now is not a good time to sell. As Ronald Ennik, an executive director of Pam Golding Properties, puts it: “If you can avoid putting your property on the market, don’t sell at this stage. It’s simply a market you don’t want to be in right now, unless you are forced by circumstances to be there.”

Ennik says homes bought in the last two to three years will probably not yield a profit if they were to be put back on the market this year. Absa Home Loans senior property analyst Jacques du Toit has a similar view. “A property owner who has bought during the past two years is set to make no profit, or even a loss, if he sells now.”

Buy-to-let investors, in particular, are advised to hold on to their properties if they can afford to. Du Toit says the increase in demand for rental property, means that investors could achieve higher income returns over the next 12 to 18 months. “Investors should therefore look through the current downward cycle and focus on income returns, with a view of achieving real capital appreciation again from 2010 onwards.”

Authored By: Joan Muller
Published By: Property24

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Buyers turn to existing property

Buyers Turn To Existing Property

The scales have tipped in favour of those looking to purchase property, and buyers looking for good returns and value will find opportunities a plenty in established property.

Carlos Moreira, principal of the new Homenet Olympic branches in Alberton and Rosettenville, says prevailing market conditions are making life difficult for developers. High land and material costs as well as a shortage of skills have resulted in many planned developments being put on hold or in unit prices being increased to try to make ends meet.

“As a result, we are witnessing a buyer shift towards established homes as they offer greater value for money. It is practically impossible for developers to build quality homes for under R1m. Comparatively, buyers can obtain an existing three-bedroom sectional title unit in Rosettenville for R450k. A similar full title home can be bought in Alberton for around R1m.

“Most of those buying existing property in our areas are first-time buyers and we encourage them to go in this direction as such homes represent great investment opportunities. For example, semi-detached houses in the ‘Old South’ of Johannesburg can be bought for between R700k and R800k, refurbished and resold for over R1m.

“Alternatively, buyers can live in one half and lease the other for around R3,500 a month to assist with the bond.”

Meanwhile, he says, the time is ripe for entry-level and middle-income homeowners to upgrade. “Properties at the top end of the market in areas such as Glenvista and Oakdene have stagnated to some extent with many sellers dropping their prices, which means real bargains for those looking to move up in the world.”

Authored By: Carlos Moreira
Published By: Property24

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Investing in residential property

Investing in Residential Property

Levels of activity and price growth in the South African residential property market have slowed down considerably over the past year on the back of sharply rising inflation, which caused interest rates to have been hiked by a cumulative 500 basis points since June 2006; the full implementation of the National Credit Act about a year ago; and the recent tightening of credit criteria by some banks. In view of the impact of these
developments on the property market, many people, including homeowners and prospective homebuyers, have become uncertain whether residential property can still be regarded as a sound investment.

An important consideration with regard to any investment is the return (a regular income and/or a capital gain after taking into account the effect of inflation). Although nominal house prices in the middle segment of the market (houses of 80 m² – 400 m², up to R2,9 million) have increased by about 12% per annum over the past twenty years, real prices have risen by only about 4% per annum over this period, mainly as a result of high levels of inflation at certain stages during this period (see table). Over the past few years since the property market recovered in 2000 after a long period of mediocre performance, house prices have surged by about 19% per annum in nominal terms, while in real terms, prices have risen by around 13% per annum. The past eight years since 2000 were marked by significantly lower inflation compared with the 1980s and 1990s.

Residential property has performed particularly well in comparison with other asset classes over the past number of years, based on the gross internal rate of return (IRR), which excludes deductions for maintenance costs, commissions and rates and taxes. The IRR includes the capital appreciation as well as the income that can be derived from the asset. Over periods of five, ten, fifteen and twenty years, an investment in residential
property in South Africa has beaten most other asset classes, as well as inflation (see table and graph on the IRR by asset class). This only applies to the situation where a house is rented in order to earn an income.

Based on the latest trends in house prices, as measured by the monthly Absa House Price Index, property owners who bought a house during the past year, are not expected to realise a sizable profit in nominal terms, if any at all, if they decide to sell now. In June 2008, nominal house prices were up by just 3,8% compared with June last year, with virtually no growth recorded since the beginning of 2008. In real terms, property prices have already declined since late last year, which implies that, on average, a property owner who has bought property during the past two years, is set to make no profit, or even a loss, if he sells now. However, property owners who have bought 5 or 10 years ago, will probably still realise an acceptable capital gain in both nominal and real terms if they sell their properties today, although profits may now be somewhat less than what they would have been had they sold their properties a year or two ago.

On the back of the current as well as expected economic conditions over the next 12 to 18 months, nominal house price growth is expected to slow down to a level of about 5% in 2008 and 4% in 2009. In real terms, however, house prices are forecast to drop by around 6% in 2008 and another 3,3% in 2009. With the residential property market expected to slow down further towards the end of 2008, bottoming in 2009, it will in the second half of this year and in 2009 be the time to buy property, especially from an investment and buy-to-let/rental point of view.

Investors in the residential property market should not expect to achieve positive real capital appreciation during
the next 18 to 24 months, but with an increase in demand for rental property, an acceptable income return may be achieved during this period. In view of property being a medium to longer-term investment (5 years and longer), property investors should look through the current downward cycle and focus on income returns, with a view of achieving positive real capital appreciation from 2010.

Economic conditions are expected to improve from late 2009 on the back of declining inflation, translating in
interest rates currently forecast to drop to 14% by end-2009, and declining to 12,5% in the period 2010-2012. On the back of these developments, nominal house prices are projected to rise by 10,8% in 2010, 12,1% in 2011 and 12,7% in 2012. In real terms, price growth of 5,1% is forecast for 2010, rising to 6,5% in 2011 and 7,1% in 2012.

Against the background of the abovementioned trends and expectations regarding the South African housing
market, an investment in property should always take account of the following factors:
• Property is a medium to long-term investment (ideally 5 years and longer).
• The stance of and prospects for the most important external factors impacting the property market (environment, society, legislation, economy, technology, infrastructure).
• The stance of and prospects for the property cycle taking into account the broader business cycle (inflation,
interest rates, economic growth, etc), as this can have an influence on capital appreciation and rental yields.
• The purpose of an investment in property (for instance primary use, buy-to-let/rental, speculation and/or asset
diversification).
• Specific regional, neighbourhood, sectoral and economic infrastructure (roads, railways, etc) trends,
developments and factors which are having or could have an impact on future values and returns.
• Diversification of a property portfolio (the type of property, such as vacant land, residential, commercial or
industrial; area, such as inland, coastal, rural or urban; and type of investment, such as direct, fractional ownership and listed property (a managed portfolio of properties).
• Liquidity (shares, unit trusts and listed property are more liquid than direct property investments, but may carry a higher risk).
• Buying new (buying off plan) versus buying existing property, or building, taking into account various aspects
related to these ways of acquiring property.
• Location is probably still one of the most important considerations when buying property.
• Tax implications (capital gains tax, personal income tax and estate duty).
• Costs (transaction costs, such as transfer duty, conveyancing fees, commissions, rates and taxes, maintenance and letting costs).
Taking account of all the relevant developments, trends and factors having an impact on the property market and its performance, property should remain a good investment in future.

Authored By: Jacques Du Toit
Compiled By: Absa Home Loans

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Low-cost housing under threat

Low-Cost Housing Under Threat

The increased cost of cement and soaring fuel prices mean the delivery of low-cost houses “is becoming impossible”, housing associations say.

Rising building costs would not only mean fewer houses would be built to ease the city’s housing backlog, but they could also affect the quality of the homes provided.

Bheki Nkonyane, of the Cape Town Community Housing Company, said steep building costs meant there was “no way people could afford structures that would not compromise on quality”.

The issue of quality was more serious in the Western Cape because of such environmental factors as flooding and strong winds, he said.

The auditor-general’s report on the administration of low cost-housing projects in the Western Cape has said most of the units inspected are “of a poor quality”. Of 110 houses inspected, more than 60 were found to be sub-standard.

Nkonyane said housing companies needed to work with “policymakers” such as the government and municipalities to find ways of dealing with rising costs.

Johan Snyman, of the Bureau for Economic Research, said the rises in cement prices had exceeded the inflation rate since 1999.

One reason was that the energy-intensive production of cement made it vulnerable to fuel price hikes.

Retail cement prices had risen more than 8 percent since last year, Snyman said.

The building sector was “transport-intensive” as labour and materials had to be transported long distances to construction sites.

The prices of cement and bricks have each increased by about 140 percent since 2000.

With the 96 percent increase in the price of diesel in the past year, builders have been hit hard by rising costs and lower profits.

Thubelisha Homes, a section 21 company that undertakes low-cost housing projects for the national Department of Housing, said amounts tendered for developments were beginning to reflect the price increases in materials.

The most recent study by the Economic Bureau for Research found that amounts tendered last year were on average 15 percent higher than those in the year before.

The bureau predicted the amounts tendered this year would be on average 12 percent higher than those last year.

Nkonyane said the average 42 square metre house would cost about R120 000, half of which would be subsidised by the government.

The government needed to increase subsidy amounts to take rising prices into account, otherwise affordable housing would be “an illusion”, he said.

A survey by the University of the Witwatersrand’s School of Construction Economics and Management has found, however, that cement accounts for only a small percentage of residential building costs.

Authored By: AnÉl Powell
Published By: www.iol.co.za

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South African property price drop may not be as big as feared

South African Property Price Drop May Not Be as Big as Feared

Property economists have painted a rather gloomy picture of the prospects for the residential property market in the years ahead, although the situation is not as dire as predicted by one major estate agency earlier this week.

John Loos, First National Bank’s property strategist, says the list of negative influences on the residential property market is long, and includes rising interest rates, increasing inflation, a slowing economy, the impact of the National Credit Act, the electricity crisis, low income yields and the recent xenophobic violence.

Loos has projected a 21-percent decline in the value of new mortgage loans and re-advances granted for this year and says we are entering a period of house price deflation.

“South Africa’s new mortgage market grew in value by almost 900 percent from 1999 to 2007 and house price inflation over the past decade was a few hundred percent,” Loos says.

He says this means the current downturn in the property market is not the end of the world. However, because the list of negative factors affecting the market is longer than he had previously anticipated, Loos says the magnitude of the downturn would be more extreme than previously forecast.

Lew Geffen, the chairman of Lew Geffen Sotheby’s International Realty, was quoted earlier this week as saying that property prices could fall by up to 40 percent from last year’s highs.

However, property economist Erwin Rode, of Rode & Associates, says estate agents tend to equate market activity with changes in house prices. Although the number of house sales could drop by as much as 40 percent in the year ahead, this does not automatically mean that house prices will fall by the same percentage,” Rode says.

“I expect that by next year or the year thereafter, residential property prices will have fallen by about 10 percent from current prices,” he says. According to Rode, the bleak outlook is not likely to disappear overnight and property prices could hit rock bottom by 2010.

Geffen was quoted in daily newspapers this week as saying that his prediction of a 40-percent drop in house prices is borne out by the fact that banks are only offering mortgages where clients put down a five-percent to 25-percent deposit.

He says Absa, for example, is only providing 100-percent home loans for properties valued up to R800 000. For properties priced from R800 000 to R2.7 million, Absa will provide a 95-percent loan and, if the property is priced between R2.7 million and R4 million, the bank is only providing a 90-percent loan.

No straight line
However, Jacques du Toit, Absa’s senior property analyst, shares a similar outlook to Rode’s.

“You cannot draw a straight line between the deposit banks are asking mortgage owners to pay and a possible drop in house prices. There is much more to the calculation and it’s simply not that straight- forward,” he says.

Du Toit says he does not foresee a 40-percent drop in prices across the board in the next year.

“While we do expect the downward trend in house prices to continue, it definitely won’t be to the extent stated [by estate agents],” he says. Du Toit says he expects the downward trend to bottom out late in 2009, with a slight sideways movement before the property market recovers very gradually from 2010.

Du Toit says the factors that have to be considered when looking at the property market include inflation and interest rates.

“Inflation is likely to remain quite high for some time and so will interest rates. The housing market is interest rate-sensitive, and people are likely to sell despite the fact that they are going to get lower prices than they would have a year ago. This applies particularly to people who bought property as speculators with the intention of selling later at a high profit,” Du Toit says.

Mortgage bond repayments have already increased 32 percent on the back of nine rate increases since June 2006. According to Du Toit, overdue mortgage loans as a percentage of total mortgage loans increased from a low of one percent at the end of 2006 to 1.5 percent at the end of 2007, and probably increased again this year.

However, they are still well below the average of 6.6 percent recorded in 1999 after interest rates went as high as 25.5 percent in 1998.

Sizwe Nxedlana, the property economist at Standard Bank, says inflation is expected to remain above the Reserve Bank’s target band of three to six percent for the next three years.

Nxedlana says further interest rate increases will mean that fewer people will pass the affordability test for new mortgage bonds, fewer mortgages will be granted and registered, and growth in house prices will be less likely.

Further stagnation
Rode says there is usually a lag of nine months between a change in interest rates and a change in house prices. “If you take into account that we are expecting two more interest rate hikes and then are looking at an effect on house prices nine months after the last interest rate hike, we are looking at an extended period of stagnation, if not a decline, in prices,” he says.

Many sellers are still expecting to obtain unrealistic prices for their homes, based on the high price growth of the past few years. Rode says sellers need to drop their asking prices to more realistic levels.

“When you are making a buy-or- sell decision, you should never consider the historic cost of the house, as this is irrelevant.

“For example, if you bought a house for R2 million six months ago, the price you paid then has nothing to do with the price you will get for the same house if you sell it today. People assume they must get a better price than the price they paid, but that’s not how the market works,” Rode says.

How you can survive the property blues
High interest rates and high inflation are here to stay for a while. It is unlikely that we will see a drop in either in the near future, property economist Erwin Rode, of Rode & Associates, says.

If you do not urgently need to sell your property, you should sit out the drop in the market over the next two years at least. This means if you have a strong cash flow, are able to meet your mortgage bond repayments and do not need to sell – for example, to avoid repossession – you should not try to sell your property right now.

If you have bought a property for investment purposes, Rode says, you should put it up for sale and get out of the market as soon as possible.

The residential property market is not likely to be a good investment for the next five years, he says.

Many property owners who took on a mortgage bond of 100 percent or more over the past five years are likely to face a negative equity situation in the next 18 months, Rode says.

Negative equity means you owe more money on your mortgage bond than the actual value of your property. If you have bought a property as your primary residence, this does not necessarily present a huge problem, because all you have to do is ride out the next few years and make sure you are able to meet your mortgage bond repayments as they increase in line with interest rates.

However, you would be well advised not to take out any further loans against your property in the near future, because, should you be forced to sell your home in the next two years, it is unlikely you will obtain a selling price that will cover the entire mortgage amount you owe.

Rode says now is a good time to renovate your home, because small builders are being hit hard. “Small builders are under pressure and looking for work. You will probably get better quality work done on your home now, because small builders are more likely to look after their customers in the current environment,” he says.

If you are looking to buy a property, Rode says you should not be in a hurry. You should ideally wait a year or two, because you are likely to pick up a better bargain as the property market gets worse for sellers.

Fixing your home loan interest rate may prove the more costly option for you
You may be thinking about fixing the interest rate on your home loan to avoid dealing with further interest rate hikes and the stress of higher mortgage bond repayments.

However, Mokgatla Madisha, a fixed-income analyst at Investec Asset Management (IAM), cautions that this may be a costly decision. “You could end up paying more in interest than if you were to ride out the [interest rate] cycle,” he says.

Although he agrees with property economists that inflation is likely to remain above the Reserve Bank’s target band of three to six percent “for a while”, Madisha does not think South Africa is facing a situation of ever-increasing inflation and interest rates over the next two years. Instead, he says, inflation is likely to be elevated over the medium term.

“A year from now, interest rates could start to fall, but they are not going to fall very fast, neither are they going to fall very far,” he says.

Madisha says fixing your interest rate for two years could mean that you are stuck paying off your mortgage bond at 16 percent in 2010 while inflation could have fallen back to six percent and interest rates could be reduced to 12 percent.

Banks generally offer you the opportunity to fix your interest rate at about half to one percentage point above the prime rate – currently 15 percent – for a period of up to two years. A variable interest rate linked to the prime rate is usually anything between one and two percentage points below prime.

The disadvantage of fixing your interest rate now is illustrated by the following examples:

  • Homeowner A, who has a mortgage bond of R1 million and who pays an instalment of R11 715 a month at prime minus two percentage points – that is, 13 percent – decides to ride out the interest rate cycle. If it is assumed that interest rates are raised by one percentage point at each meeting of the Reserve Bank’s monetary policy committee in June, August and October, and then stay level until May 2009, the prime rate will be 18 percent by October, and Homeowner A will be repaying R13 912 a month on an interest rate of 16 percent.
  • Homeowner B, who also has a mortgage bond of R1 million, chooses to fix his home loan at prime plus one percentage point now, which will result in his monthly repayment increasing to R13 912.This means Homeowner B will immediately have to cough up every month what Homeowner A will start paying only in October. Over a full year, Homeowner B will be paying about R6 000 more.Madisha says IAM does not foresee a three-percentage-point hike in interest rates during this year.

    “We anticipate a further one to 1.5-percentage-point-rate hike until the cycle peaks, which would mean that the homeowner on a fixed rate is even worse off. He could be stuck for another year at the fixed rate, while those on a floating rate, or a rate linked to the prime rate, could start enjoying the respite of lower interest rates.”

Authored By: Neesa Moodley-isaacs
Published By: persfin.co.za

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South African property price decline is fastest in 11 years

South African Property Price Decline is Fastest in 11 years

Pretoria – House prices, excluding the effect of inflation, dropped by 5 percent year on year in April, which is the biggest decline since March 1997.

Absa, which released its latest house price index yesterday, is now forecasting for the first time that real house prices will slip this year and next year.

Jacques du Toit, a senior property analyst at Absa, said the forecast had been changed because of the upward movement in interest rates, which were still expected to rise further this year and would have a major effect on the growth in house prices, and inflation ticking upwards.

House prices have now declined in real terms for three consecutive months, according to Absa’s house price index.

Negative real growth of 1.5 percent was recorded in February, 3.4 percent in March and 5 percent in April.

February was the first time real house prices had declined since June 1999.

Du Toit said the real price of a middle segment house had dropped by 5.7 percent to about R614 400 in April from an all-time high of about R651 600 at constant year 2000 prices in August last year.

The average nominal house price had declined by R4 000 over the past three months.

Absa said nominal house price growth dropped further last month to 4.3 percent year on year in the middle segment of the market from a revised growth of 5.5 percent in April.

This was the lowest nominal year-on-year price growth recorded since October 1999, when it was also 4.3 percent.

Homebuyers have now shifted their focus to smaller and more affordable properties.

The release of the house price growth slump news coincided with this week’s warning by Lew Geffen, the chairman of Sothebys International Reality, that house prices were expected to drop by about 40 percent by the end of this year.

Other major estate agency businesses reported that sales volumes were about 30 percent lower, housing stock available for sale had doubled in the past five months, buyers had declined and that banks had tightened their lending criteria.

Du Toit said developments on the inflation front, together with recent comments by Reserve Bank governor Tito Mboweni that drastic measures were needed and that the bank was now forecasting CPIX (consumer price index minus mortgage costs) inflation to decline to the 6 percent level again only by 2010, were expected to result in the monetary policy committee hiking interest rates by 100 basis points next week.

He said there was the risk of further rate hikes later this year if the CPIX inflation rate remained stubbornly high.

“In view of these developments and expectations, activity levels in the residential property market, and both nominal and real house price growth, are forecast to slow down even further in the rest of 2008 and into 2009,” said Du Toit.

“In real terms, house prices are expected to decline this year compared with 2007, with a further real decline projected for next year.”

Authored By: Roy Cokayne
Published By: Business Report

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Pace of South African property price growth slowed further in May

Pace of South African Property Price Growth Slowed Further in May

Based on the latest Absa House Price Index, house price growth dropped further to a nominal 4,3% year-on-year (y/y) in the middle segment of the market in May this year, down from a revised 5,5% in April. It was the lowest nominal year-on-year price growth recorded since October 1999, when it was also 4,3%, and
brought the average price of a middle-segment house to about R960 700 in May.

In real terms, house prices in the middle segment of the market dropped by 5,0% y/y in April 2008, compared with a decline of 3,4% y/y recorded in March, based on headline CPI inflation. This was the biggest real year-on-year drop recorded in house prices since March 1997, when it was at a level of -5,2% y/y, based on nominal price growth of 3,9% y/y, and a headline CPI inflation rate of 9,6% at the time.

On a month-on-month basis, revised nominal house price growth was negative to the tune of 0,1% between March and May this year, which was the first nominal month-on-month price drop since January 1999. As a result, the average nominal house price has declined by about R4 000 over the past three months. In real terms, house prices dropped by a further 1,9% in April from March. The real price of a middle-segment house
has dropped by a total of R37 200, or 5,7%, from an all-time high of around R651 600 (at constant 2000 prices) in August last year to about R614 400 in April this year.

CPIX inflation rose to 10,4% y/y in April, driven by the usual factors of high oil prices and food inflation, and exchange rate movements. Fuel prices were raised further to record highs this week, which should keep inflation under upward pressure in the near term. As a result, inflation expectations will remain high over the short term, which are expected to contribute to higher wage demands this year. Moreover, if the food and fuel price components are excluded, the CPIX inflation rate continued its upward trend to reach a level of 6,1% y/y in April – an indication of secondary inflationary effects present in the economy, which are of great concern to the Reserve Bank.

These developments, as well as recent comments by the governor of the Reserve Bank that drastic measures now need to be taken, and the fact that the Bank is now forecasting CPIX inflation to reach the 6% level only by 2010, are expected to see the Monetary Policy Committee hiking interest rates by a full 100 basis points next week (11- 12 June), with the risk of further rate hikes later this year if the CPIX inflation rate remains stubbornly high.

In view of these developments and expectations, activity levels in the residential property market, and both nominal and real house price growth are forecast to slow down even further in the rest of 2008 and into 2009. In real terms, house prices are expected to decline this year compared with 2007, with a further real decline projected for next year.

Compiled By: Jacques Du Toit
Published By: Absa Home Loans

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South African property price growth at an 8½-year low

South African Property Price Growth at an 8-Year Low

According to the latest Absa House Price Index, property price growth slowed to a nominal 6,8% year-on-year (y/y) in the middle segment of the market (see explanatory notes) in April 2008, down from a revised 7,8% in March. It was the fourth consecutive month of single-digit growth in nominal property prices since a growth rate of 11,2% was recorded in December last year. The latest price rise of 6,8% y/y was the lowest since November 1999, when it was 6,5%, and brought the average price of a middle-segment property to about R974 000 in April this year.

In real terms, property prices in the middle segment of the market dropped by 2,5% y/y in March 2008, compared with a decline of 0,9% y/y recorded in February, based on headline CPI inflation. This was the biggest negative real year-on-year growth rate recorded in house prices since May 1997, when it was at a level of -3,4% y/y, based on nominal price growth of 5,7% y/y, and a headline CPI inflation rate of 9,5% at the time. On a month-on-month basis, nominal property price growth was only 0,2% in April, unchanged from March. In real terms, property prices dropped by 1,3% in March from February. The real price of a middle-segment property has dropped by a total of R19 700, or 3%, from an all-time high of around R651 500 (at constant 2000 prices) in August last year to about R631 800 in March this year.

Sharply rising CPIX inflation, currently at 10,1% y/y and mainly driven by international oil price, rand exchange rate and food price trends; the 450 basis points worth of interest rate hikes since mid-2006 on the back of inflationary pressures; a significant slowdown in growth in real household disposable income in 2007; and the full implementation of the National Credit Act in mid-2007, are factors having a negative effect on the affordability of property. These trends have caused the focus of homebuyers to have shifted from luxury, large and expensive properties to smaller and more affordable properties in recent times. As a result of these developments, the downward trend in year-on-year house price growth has accelerated since September last year.

With inflation still under strong upward pressure, inflation expectations will remain high over the short term, which will have a significant influence on demands for higher wages this year. Against this background, the Reserve Bank’s Monetary Policy Committee is expected to hike interest rates by another 50 basis points at the June meeting. In view of these developments and expectations, property price growth is forecast to slow down even further in the rest of 2008 from current levels. Nominal price growth of well below 10% is projected for the full year, with real price growth expected to be in negative territory, which will be the first annual drop in real prices since 1999, when it was -0,3%.

Compiled By: Jacques Du Toit
Published By: Absa Home Loans

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Right residential stock has buyers

Right Residential Stock Has Buyers

It is anticipated that the residential property market, which is experiencing a real low according to the banks, will remain inactive for the rest of 2008.

Despite this state-of-affairs, the right residential stock quickly finds a buyer.

The Standard Bank median house price fell to R530k in April from R550k in March. The April median house price of R530k translates into a growth rate of negative 8,6% year-on-year (y/y) when compared to the median house price recorded in April 2007. The five-month moving average growth rate declined to –2,8% y/y in April.

However, recent point estimates for house price growth should not be taken at face value and should be interpreted with caution as they are subject to certain distortions.

The latest First National Bank (FNB) Residential Property Barometer has accorded the residential property sector an activity ratio of 4,96 on a scale of 1 to 10.

This is because affordability, which is key to the performance of the residential property sector, is lacking due to an increase in house prices, interest rate hikes, rising inflation and the National Credit Act (NCA). This situation is exacerbated by negative sentiment as many homeowners prepare to emigrate.

The percentage of first-time buyers in the residential sector has dropped to 14% from 32% in 2005 as first-time buyers contend with rejected mortgage applications. In addition, people who have already purchased homes are selling and renting in order to make ends meet.

It must be noted though that different sectors within the residential property sector as well as residential properties in different geographical locations have been impacted to different degrees by the residential market slump, with some not being affected at all, revealing that statistics on house price inflation do not divulge information on areas outside the norm.

And this is evident in the fact that there is constant demand for certain types of residential property that are appropriately priced.

The Rode Report for the last quarter of 2007 records that since 2006 lower-priced houses have been doing better than their more pricey counterparts. Property economist Francois Viruly says that houses within the R1m to R2m market will become more affordable within the next two years “with the rise in property prices expected to keep fairly close to the inflation rate”.

He points to the demand for residential houses/units under R1m from people relocating from former black townships predominantly, and feels there could still be price growth above the inflation rate in this sector of the housing market. He also says price growth may even drop to below the inflation rate in some segments of the residential market.

According to Rael Levitt, CEO of The Alliance Group, there is currently much demand for single residential houses under R750k rather than apartments and for houses going from R15m upwards.

He further says that houses in the R2m to R5m bracket are especially unpopular and that overall leisure homes, especially in coastal areas, have been the most impacted by the slump.

According to John Loos, FNB Home Loans property strategist, the lack of affordability in the residential sector has and will continue to result in a noticeable amount of new residential development falling into the lower-priced category of the market, which entails more basic and smaller houses, whereas before it would have been in the more middle stream of the market. In addition, more people are being forced to purchase more basic houses with the intention of upgrading them when finances permit.

Location is also an important factor when it comes to desirability of residential stock. This is manifested in the example of Realty 1 International Property Group announcing that Mafikeng is going against the grain with people wanting to buy houses and a shortage of stock there.

The Rode Report for the last quarter of 2007 also shows that nominal house price growth in Johannesburg, Pretoria and Port Elizabeth has decreased from previous growth rates while nominal house price growth in Durban and Cape Town has increased.

Authored By: Kara Michaels
Published By: Property24.com

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South African Property Sellers Get Real

South African Property Sellers Get Real

South African property owners are setting asking prices at about 10 percent below their peak.

According to The Alliance Group, a large auction and valuation group, the supply of houses up for sale has outstripped demand in the past three months — the first time this has happened in the past six years.

In its first quarter review road show to financial institutions and property funds, Alliance has confirmed that the residential property market has cooled off across the board including the very top end of the market which has been impervious to market changes and interest rate fluctuations.

The market above R15-million and below R500 000 seem to be having the least impact, “but they are certainly not immune to local and international value re-pricing,” explains Chief Executive, Rael Levitt.

The newly appointed Alliance research department picked up the property slowdown in the third quarter of 2007 through decreased bidding activity on its auction floors. “There is no doubt that sellers are rapidly becoming far more flexible and realistic due to a flood of stock hitting the market with less and less buyer uptake,” explains Levitt. “It’s a classic case of supply exceeding demand and despite South African residential real estate experiencing growth of 300 percent in a relatively short time frame, reality is now dawning on homeowners that values don’t only go upwards but are in fact now decreasing.”

Signs of negative equity are emerging

“For struggling property owners and their financiers this presents a real problem particularly to home loans granted in 2007 where there are now signs of negative equity emerging, which may be widespread,” says Levitt. Alliance is cautioning banks that property valuations conducted in 2007 should be treated with great caution and must not be completely relied upon when assessing their asset based securities.

“We are far away from the 2001 period where certain properties had negative equity of up to 20 percent. However, for the first time in six years a flat and now a decelerating market is putting pressure on new homeowners who are getting caught in a debt trap where they cannot quickly sell and settle their full outstanding mortgage bond debt.”

Published By: iafrica.com

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