Deflating prices and bargain homes

13 Aug 2012

South African house prices are expected to deflate in real terms over the next 18 months, resulting from trends in nominal prices and headline CPI.

A typical middle income freehold home in the price range of R1.5 million in Strand.

The Absa House Price Index July report reveals that the housing market is forecast to continue to show a relatively subdued price performance towards the end of the year and into 2013.

According to the report, year-on-year (y/y) growth in the average value of homes in the middle segment of the South African housing market continued to show strain in July.

Price levels in the large-home category remained unchanged in nominal terms over the past few months, with prices in the medium-sized segment showing signs of a gradual improvement.

Jacques du Toit, Absa Home Loans property analyst, says the small segment continued to record price deflation up to July, but the pace of deflation has been slowing down since March this year.

On a month-on-month basis house price growth is on a slight upward trend since April, starting to positively impact y/y price growth

He says in real terms, house price deflation continued up to June, with the momentum slowing down against the background of trends in nominal price growth as well as a downward trend in headline consumer price inflation from 6.3 percent y/y in January to 5.5 percent y/y in June.

South African house prices are expected to deflate in real terms over the next 18 months, resulting from trends in nominal prices and headline CPI, according to Absa.

The average nominal value of homes in each of the three middle-segment categories of the housing market in July was R692k for small homes (80 to 141 square metres), R1 019 900 for medium-sized homes (141 to 220 square metres) and R1 475 500 for large homes.

Du Toit points out that although interest rates were cut by 50 basis points in July, many households are still heavily indebted and will find it hard to afford buying a new home.

“Economic growth, employment, inflation, interest rates, household income and debt, consumers’ risk profile and consumer confidence will remain key factors to the housing market in the rest of 2012.”

These factors will impact the affordability of property and accessibility of mortgage finance against the background of trends in property prices, property running costs, financing and transaction costs and banks’ lending criteria, he says.

Meanwhile, Rawson Properties Strand Franchise reports that the market has turned and would-be buyers are urged to not waste any more time when they find the right property they can afford to buy.

Wouter Joubert, co-franchisee and manager of Rawson Properties Strand, points out that there once were big price drops in the area but they are now very definitely over. 

“This year we are witnessing between 5 and 6 percent overall price increase in middle bracket homes.”

Joubert notes that they sell up to 14 homes per month and this figure has doubled from last year's sales.

Buyers are reportedly active in the middle income bracket and are buying freehold homes priced between R850k to R1.4 million.

For those buyers who have always wanted to own property in Plettenberg Bay, stands at the prime Schoongezicht Country Estate are sold at half price.

More affordable investment units set back from the beachfront, many of which are situated in the not-so popular areas, are priced from as little as R280k.

Joubert points out that this middle income bracket went through a boom five years ago although today sellers struggle to get even close to the prices they paid back then.

Homes priced between R1.5 million and R5 million still take longer to sell and sellers in this price bracket accept anything from a 15 to 25 percent drop on the prices that were paid in the 2007 and early 2008 property boom.

Joubert says the luxury sectional title units along Beach Road, where some of the finest coastal properties in South Africa are found, had been hardest hit when it comes to the price drop.

He says five to six years ago, buyers were prepared to cough-up as much as R4 million for a high rise apartment, which equated to R20k per square metre.

Today, these apartments are selling for between R12k and R14k per square metre.

“Investors and buyers purchasing these apartments today will, five years from now, find themselves owning an asset that will represent excellent value for money and be the envy of sectional title owners throughout South Africa.”

Joubert says in all categories, prices are still exceptionally reasonably especially when compared to other Helderberg Basin nodes, such as Somerset West

“This is the ideal place for the slightly less affluent, the first-time buyer and those looking to buy for retirement,” he says.

For those buyers who have always wanted to own property in Plettenberg Bay, stands at the prime Schoongezicht Country Estate are sold at half price.  

An example of a sectional title development where more affordable investment units are available for about R300k in Strand.

John Fuller, the Chas Everitt International franchisee in Plettenberg Bay, explains that the estate developers want to move on to other projects and so they have decided to mark these stands down by 50 percent and sell them quickly.

For example, he says stands measuring up to 1 900 square metres sell for less than R500k including VAT.

“This is really outstanding value for money, especially when one considers that Schoongezicht is one of the top lifestyle estates on the Garden Route,” he says.

It is located next to the Plettenberg Bay Country Club, close to the town’s main beach and shops and it incorporates several different suburbs with properties priced from R1.8 million to R12 million.

Buyers at Schoongezicht have three years in which to build their homes, he says.

According to Maggi-Mae Vidas, co-owner of Aida Fishhoek franchise, buyers are back in the market, albeit slow.

First-time buyers are especially active in the residential market, buying homes priced at less than R1 million, and can get three bedroom apartments in this price range in Fishhoek.

She notes that buyers who are realistic about what they can afford no longer battle to obtain home loans.

Uncertainty regarding the economic outlook is also drawing investors in the buy-to-let market as seen in the number of cash buyers who prefer to invest in property than any other investment assets.

Vidas points out that landlords currently earn between four and five percent of capital outlay.

First-time buyers and investors are not the only ones drawn to Fishhoek, people relocating to the area mostly from Gauteng and are buying as second home buyers.

Vidas adds that their core market remains local residents who scale up or down.

Older residents cite maintenance costs on a larger property as the main reason for buying smaller properties, while young families needing larger accommodation tend to sell their starter homes and buy family homes. – Denise Mhlanga

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