09 Dec 2013
According to FNB, house price growth reached 7.2 percent year-on-year (y/y) from 7.1 percent in October, while in real terms, growth was 0.7 percent y/y in September up to 1.5 percent in October.
Writing in the report, FNB household and property sector strategist John Loos and Theo Swanepoel, property market analyst at FNB Asset Finance, explain that since the real house price peak at the end of 2007, house prices have declined cumulatively to the tune of -20.1 percent to date, while growing by a moderate +14.7 percent in nominal terms since then.
Over the past 10 years, price levels are still +29.3 percent higher than November 2003 in real terms and 129.3 percent in nominal terms, pointing out that the average house price, according to transactions financed by FNB was R907 182.
They say stock constraints and weak building numbers in recent months have made them ponder the possibility that price growth in 2014 could be considerably higher than 2013.
“We go for an expectation now of average house price growth of 6.5 percent for 2014, a very similar growth rate to what looks likely to be the outcome for 2013.”
In 2015, they expect a mildly slowing price growth rate, which is driven by the FNB forecast of interest rates starting to rise mildly early in that year.
Meanwhile, Absa expects single-digit house price growth in 2014, based on trends in and the outlook for the economy, household finances and consumer confidence.
Expectations regarding nominal house price growth and consumer price inflation will result in relatively low real house price inflation in 2014, says Jacques du Toit, Absa Home Loans property analyst.
In the recent Absa House Price Index report, y/y growth in the average value of homes in the middle segment slowed down in November.
Du Toit says economic conditions and trends in household finances and consumer confidence are also affecting the property market and playing a role in price growth.
According to Absa, the average nominal value of small homes (80 to 140 square metres) in November was R804 000, medium-sized homes (141 to 220 square metres) R1 083 000 and large homes (221 to 400 square metres) R1 689 000.
He says consumer price inflation is forecast to average between 5.5 percent and 6 percent in 2014 and interest rates are set to stay at current low levels before rising in the third quarter of 2014.
“Low lending rates will keep debt servicing costs under control, while the household debt-to-income ratio is expected to remain above the 70 percent level,” notes Du Toit.
The Standard Bank House Price Index (HPI) recorded 6.7 percent y/y growth from 6.4 percent in October.
Sibusiso Gumbi, macroeconomics analyst at Standard Bank, says this improvement was broad-based, with the nominal index monitoring freehold properties improving to 8.3 percent y/y from 8.0 percent y/y in October.
Similarly the nominal index that monitors sectional title properties improved to 5.6 percent y/y in November from 4.7 percent y/y in October, he explains.
Gumbi notes that the household indebtedness ratio remains elevated showing an improvement to 75.5 percent of household disposable income in Q3 13 from 75.8 percent in the previous quarter.
Mike van Alphen, national manager for Rawson Finance, says house price growth is always affected by a whole range of factors impacting on the consumer’s financial position.
These include low economic growth, low savings, impaired credit records and diminished financial confidence.
However, if one looks at the broader picture, then two factors become detectable in most housing economy reviews and these are that house price rises, except in exceptionally negative economic conditions, tend at least to keep pace with the national economic growth rate and with the inflation rate, he explains.
“In most years the house price growth will be a few percentages ahead of the inflation rate, which is one of the reasons why investors find this asset class so satisfactory,” he says.
Alphen says although a small further drop in house price growth is just possible before the end of this year, the prospects, in his opinion, remain reasonably bullish.
“I believe house prices will continue to rise by over 8 percent in 2014 and this should encourage investors because in today’s market that sort of return is fairly satisfactory,” says Alphen.
Despite single digit growth in house prices, some parts of the country, such as Kommetjie in the Western Cape predict a bumper festive season as stock shortages are pushing up the average prices.
According to Marissa Massari, property consultant at Jawitz Properties Kommetjie, they have an estimated 50 homes and 45 vacant stands on the market currently and serious buyers are urged to decide quickly or they will miss out.
Massari explains that Kommetjie caters for those buyers who dream of living a peaceful village lifestyle by the seaside, surrounded by nature, at affordable property prices.
Entry level prices start at R1.6 million while available stands are generally priced from around R895 000.
Luxury homes on the beachfront have fetched up to R20 million, according to the agency.
“Quality of life is Kommetjie’s main drawcard with nature on its residents’ doorsteps,” says Massari.
Typical activities include bird watching, crayfishing, diving, kite-surfing, mountain walks, whale watching, snorkelling and surfing the waves of world famous Longbeach.
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