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