South African property market 'to take a pause in 2008'

South African Property Market ‘To Take a Pause in 2008’

The South African residential property market is poised for another year of slowing price growth – but the news is “not all bad”, said Herschel Jawitz, chief executive of Jawitz Properties. “With double-digit growth since 2000 and eight rate increases over the last 18 months, it is no surprise that the market is set to take a pause in 2008,” he said. Price growth will probably be in single digits for the first time in seven years. By first-world standards (and even some third world countries), growth of 8% to 9% would be acceptable given inflation rates that sit between 1% and 3%, Jawitz said.

However the situation in South Africa was very different. While the slowdown in house-price growth may afford people’s salaries the opportunity to catch up, would-be buyers and current homeowners must cope with mortgage repayments that have increased by 25% since the middle of 2006, Jawitz said. “But the news is not all bad.” Firstly, as a result of the rise in interest rates and the increase in repayments, potential buyers are showing signs of rather waiting it out in the rental market.

As a result, rental yields are on the increase for investment property owners. Secondly, South Africa has largely been spared the fallout from the subprime crisis in the United States and United Kingdom. Jawitz said the supply of housing onto the market was also decreasing, with new building plans being passed continuing to slow down. “While the housing shortage is a significant challenge in South Africa, especially at the lower end of the market, a slowdown in new building should also help in supporting both price growth and rental growth, however small.”

Jawitz said there were very few times, if any, where the property market was in equilibrium — when buyers matched sellers in both number and price expectations. “This market is no different. Sellers need to realise and respond to a market that has slowed in terms of price growth and demand as compared to previous years. On the flip side, there were still no bargains and buyers should not adopt the view that prices were falling and that desperate sellers wanted out. “Despite the current high interest rates, the slowing price growth is an opportunity for buyers to get into the market. At some point interest rates will start to fall and prices will start to climb at an increasing rate again leaving buyers gasping for breath as they were a few years ago,” he said.

Published By: Mail & Guardian, January 22, 2008