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