The nominal value of medium-sized and large homes in South Africa improved further in October while values of smaller homes contracted says Absa.
In October, the average nominal house price for smaller homes was R734 800, medium-sized homes, R1 009 500 and large homes, R1 457 800.
According to the Absa House Price Indices report, the nominal value of medium-sized homes (141-200 square metres) and large homes (221-400 square metres) improved further in October when compared to the same period in 2010.
Smaller homes (80-140 square metres) continued to contract on a year-on-year (y/y) basis.
The report revealed that y/y price changes appeared to have peaked in all three categories of housing, which are related to slowing or declining price trends on a monthly basis since earlier this year.
In October, the average nominal house price for smaller homes was R734 800, medium-sized homes, R1 009 500 and large homes, R1 457 800.
Absa Home Loans property analyst Jacques du Toit says in real terms, the annual price deflation continued across all three segments of housing up to September 2011, impacted by rising headline consumer price inflation, which reached a level of 5.7 percent y/y in September.
The average real price (at constant 2008 prices) of houses in the middle-segment of the market (see explanatory notes) was about 13 percent in September below its peak of mid-2007.
He says this was the result of average nominal house price growth being below the average headline consumer price inflation rate during this period.
Absa expects the South African economy to grow by 3.1 percent in real terms this year (2.8 percent in 2010) with growth expected to rise marginally to 3.4 percent in 2012.
Du Toit says although headline consumer price inflation is expected to rise further, interest rates are forecast to remain low well into next year before being hiked.
If economic conditions continue to deteriorate, interest rates may be lowered further from current levels, he says.
Based on house price trends up to October this year and the outlook for the economy and the household sector, nominal price growth in the middle segment of the housing market is projected at between 2 percent and 2.5 percent for the full year of 2011.
Absa says in real terms, house prices are set to decline further towards the end of the year and into next year.
Price growth is forecast to improve in 2012 but will remain below 5 percent in nominal terms, he says.
He adds that in real terms, house prices are set to decline further towards the end of the year and into next year.
Meanwhile, South African estate agents believe that property is still a good investment and that the housing market is bottoming out despite slow growth in home values.
According to Richard Gray, chief executive officer of Harcourts South Africa, despite slowing in house price growth, in the long run, property is always a good investment and an asset as prices are bound to be driven up again in the future.
“People need to remember that buying property is still one of the best decisions they will ever make,” he says.
Gray says looking back 20 years ago, property trend were filled with fluctuations of increases and decreases of property prices.
Current trends in the market reflect that the percentage of buy-to-let buying is low and those buying are homes for primary residential purposes, he says.
“The trend in the market presents opportunities for these potential home owners to negotiate great deals on property.”
He explains that South Africa is experiencing a buyer’s market due to an increase in property stock, with the supply having overtaken the demand for property.
As the price of property decreases and one is lucky to be granted a home loan, it is the ideal opportunity to purchase one’s dream property at a significantly lower cost than in the past.
When evaluating growth in value of a property in Durban North in KwaZulu-Natal over the last 25 years, it reflected dramatic inflation with the value doubling 3.25 times in the first 12 years and has steadily increased over the years.
This reiterates the fact that although prices will fluctuate over time as a result of external economic conditions, they will increase in the long term and therefore purchasing property will always offer a solid investment, he says.
Dianne Brock, general manager of the Western Cape Institute of Estate Agents, says the South African housing market is bottoming out.
Due to fewer active agents in the market, the existing competent agents are now actually selling more residential units than they did in the so-called boom times – but they have to work harder for them.
She says data from PropStats shows that the traditional seasonal upswing is again a reality with new home buyers entering the market.
“We are seeing increased activity particularly in the entry level to R1.5 million,” she says.
Luxury and expensive homes are reportedly still difficult to sell as many sellers are unrealistic in their pricing.
Brock says various reports on housing indicate that the worst may now over and while growth may be insignificant, the likelihood of a further big drop in prices can now be discounted.
“With national house price increases at 5.1 percent we seeing prices more or less holding steady against inflation suggesting that now could be a good time to buy.”
She says since the number of estate agents in South Africa has decreased to 25 000 from 86 000, competent agents are able to maintain a reasonable turnover.
Due to fewer active agents in the market, the existing competent agents are now actually selling more residential units than they did in the so-called boom times – but they have to work harder for them, she adds.
The decline in both nominal and real terms of selling property prices is good news to buyers who have always wanted to buy in Camps Bay in the Western Cape.
According to Francois Venter, Western Cape regional manager for Jawitz Properties, Camps Bay is no longer the domain of only the super wealthy.
He says data from Lightstone revealed that the average price of freehold property in Camps Bay has decreased by 26 percent from R7 437 000 in 2009 to R5 480 000 in 2011.
“Current selling prices are almost on par with those prices achieved of 2006,” says Venter.
He explains that Camps Bay has always been a desirable area because it offers the benefits of a coastal lifestyle combined with its proximity to the city and shopping areas like the V&A Waterfront.
During the previous property boom, property prices were inflated by foreign buyers taking advantage of the highly favourable exchange rates that prevailed. But with the rand strengthening to current levels and the onset of the global recession, foreign buyers have slowed and prices have normalised, he says.
As a result, Venter says there is an influx of younger families on the waiting lists as well as people who grew up in the area and then left to work overseas or in Johannesburg and now want to return to Camps Bay to raise their families.
Many are finding value in the wide range of ‘fixer-upper’ properties available.
Data from Lightstone revealed that the average price of freehold property in Camps Bay has decreased by 26 percent from R7 437 000 in 2009 to R5 480 000 in 2011.
Young families know that it makes sense to buy an older home in a good neighbourhood like Camps Bay and then over time, renovate it to their own standards.
Venter says 31 transfers of freehold properties have been registered in the deeds office for Camps Bay since the beginning of the year.
On average, the selling price has been 21.2 percent below the asking price.
Homes selling for under R7 million in Camps Bay are an indication that this segment is the most active with 21 sales (67.7 percent) out of 31 sales to date.
The properties priced between R7 million to R10 million recorded six sales (19.3 percent) and R10 million and above with four sales (12.9 percent).
According to Lightstone, freehold properties in Camps Bay remain on the market for on average 393 days. Some properties have sold much quicker than the average in the area depending on the sellers’ willingness to price their properties in line with market realities, he says.
As an example, Venter says some properties have sold within three to four months for 11.2 percent below the asking price.
“Properties that stay on the market the longest are those that suffer the greatest draw downs from asking price to final selling prices.” – Denise Mhlanga
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