20 Nov 2012
Jan Davel, managing director of the RealNet estate agency group, says household finances are likely to remain under severe pressure in 2013, which will limit the ability of prospective buyers to qualify for bonds and become homeowners.
“The increased consumer appetite for credit in 2012 has been matched by aggressive lending in the personal loan environment, and many households will be carrying an increased debt load into 2013.”
Davel says real disposable incomes are likely to shrink due to such factors as Eskom tariff hikes, rising food and fuel prices, higher municipal rates and the introduction of e-tolling.
Debt ratios that have been declining will, in many cases, go back up again and choke off demand.
Many households will simply not be able to qualify for a home loan, despite the fact that interest rates are expected to stay low in 2013, he points out.
“Those same low interest rates will make it difficult, even for those without much debt, to grow their savings and pay the substantial deposits that banks so often require now in order to grant a loan.”
However, he says there still is an abundance of distressed properties being sold by the banks at much-reduced prices – about 80 percent of current market value, on average – and this will have an additional negative effect on house price growth.
“Consequently, we expect relatively low nominal house price growth during 2013, and negative real house price growth, similar to that in 2012.”
As for the real estate industry, he says, this will be going through a “detox” procedure in 2013, as current real estate practitioners have until the end of 2013 to bring their minimum qualifications up to date, while Continuous Professional Development has also been brought into play.
“These barriers to entry, together with legislation such as the Consumer Protection Act, rising consumerism, ever improving technology and a much more efficient Estate Agency Affairs Board will all have an extremely positive influence on the industry, since agents who don’t pay attention to the new training requirements, skills intensities, rules, procedures and market conditions will be unable to keep up with those who have geared up for a more professional arena.
“In other words the industry will say goodbye to many of the ‘not-so-good’ operators.”
Lew Geffen, chairman of Sotheby’s International Realty in SA says he expects a “much more buoyant” residential property market in 2013.
“The recession is over, not only economically but also psychologically, and consumers are now much more confident about moving on with their lives and advancing their homeownership plans.”
Geffen says housing demand is increasing at all levels, and although bank caution is slowing sales in the under R1.5 million category, this is much less of a problem in the higher price sectors, where buyers generally require finance for a smaller percentage of the purchase price.
Lately, he says, Sotheby’s International Realty has experienced a sales surge in the R6 million to R10 million range, driven mainly by South African buyers taking the opportunity to upgrade to larger and more luxurious properties at the current favourable price levels – in the firm belief that these will not hold for more than another year.
With regard to overall price expectations for 2013, Geffen expects growth to be constrained at around the level of inflation until more stock is absorbed, but is confident that they will start to climb strongly in 2014, which will be the start of a new boom.
Berry Everitt, managing director of the Chas Everitt International property group, says 2013 will be the year when property developers start making a moderate re-entry into the market.
“There has of course been some development at the lower end of the market for the past few years, because buyers in this sector are often subsidised or able to gain special access to 100 percent home loans.”
Everitt anticipates that developers will become increasingly active in the R650 000 to R850 000 price bracket where banks are lending well, especially on newly-built homes.
He believes banks will continue, for most of next year, to keep a lid on the market by valuing properties and lending according to bank security value, which does not necessarily coincide with actual market value.
“In other words, they will often not be prepared to lend as much as the prospective buyer is willing to pay, leaving the serious seller little choice but to lower his price if he wants to conclude a sale.”
An alternative response, Everitt says, might be for the buyer to raise the amount of his deposit, but in practice this seldom happens, and it is much more likely that, if the seller won’t budge, the buyer will abandon the deal and look for a cheaper property.
Either way, he says this practice is likely to prevent the rising housing demand that we see occurring next year from being translated, as it usually would be, into rising property prices.
In fact, we do not expect to see nominal house price growth top inflation next year, he says.
Everitt says property portals such as Property24, Private Property and IOL Property continue to gain traction in the real estate industry as the advertising media of choice.
“This is driven mostly by consumer expectations of ever-easier and faster access to more information and product via the Internet, and as they compete for market share, these portals are also providing better services to their advertisers, and property sellers.”
Within the real estate industry, he says major brands will add to their franchise offerings new systems and processes for managing long-term and holiday rental properties in order to recession-proof their franchisees.
Chas Everitt International will be one of the first with such a specialised offering.
Rudi Botha, chief executive officer of BetterBond, SA’s leading mortgage originator does not expect any increase in the prime interest rate until at least the end of 2013.
Botha says many prospective home buyers will remain unable to take advantage of the increase in home affordability offered by low interest rates, so there is also unlikely to be any significant rise in either home sales or home prices next year.
The problem is that many households still have just too much debt to qualify for home loans, and the situation has being exacerbated this year by huge growth in unsecured lending, particularly by loan sharks who take advantage of consumers and charge exorbitant interest rates that just sink people deeper into debt.
However, he believes the banks – while retaining their strict credit criteria - will be focusing more on secured lending next year rather than personal loans and other forms of unsecured lending, and that this will encourage consumers to pay down their debts and save the deposits they need in order to obtain home loans at advantageous interest rates.
And that should bring about an improvement in home loan grant rates and successful home purchases towards the end of 2013.
Botha says first-time purchases, which currently account for 40 percent of the total, will continue to be the main driver of the market next year, as they free up existing owners or developers to make further purchases or embark on new projects.
“We do, however, expect buyers at all levels to respond to ever-rising food, fuel and utility costs, and higher property taxes, by continuing to ‘buy down’ to smaller and less expensive properties, and this will also constrain house price growth, especially in the upper sectors of the market.”
Neville McIntyre, chairman of Aida’s parent company Jigsaw Holdings, says the expectation all over the world, and not just in South Africa, is that a scarcity of capital will prevail in 2013 and that there will thus be no increase in mortgage lending.
“The demand for housing is set to increase dramatically, and because of that we foresee that there will be a slight increase in the number of property transactions and in the number of new developments coming to the market.
He says there will also, of course, be strong demand for rental properties, which will be good for buy-to-let investors and prompt an increase in investment purchases.
McIntyre says large numbers of distressed properties still being brought to market by the banks and sold at below market value will suppress home prices in 2013 – but at the same time these ‘bargain’ properties will sustain activity and awareness and make homeownership more accessible for quite a number of people.
He notes that a lack of skills and capacity in government and planning departments as well as in some Deeds Office branches remains of serious concern to the real estate industry.
It causes major delays in developments, zoning approvals and transfers, and that has financial implications for everyone in the property sale chain, he adds.
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