The article in today's Star Business Report on house prices heading for a 40% drop has generated renewed despair amongst home owners and sellers. However, this may be only one side of the story.

"We need to be very careful about making sweeping statements," says Richard Gahagan, MD of Property24. "It's all very well to say house prices have dropped, but this only applies to certain segments of the market. There is ample evidence that properties in the so-called affordable price range are in high demand, buyers are available and although the banks are now more reluctant to approve 100% bonds, there are still sales taking place."

"It's also seems to be very easy for the mostly white real estate industry to make the mistake of discounting the township markets," says Gahagan. "FNB's Property Barometer for Q4 2007 showed that township markets were still racing ahead, some by as much as 50%."

According to FNB's property strategist John Loos, the massive price gains in former township areas are a reflection of a shortage of stock in the affordable housing market which, he says, is "rapidly becoming less and less affordable".

In Gauteng, these include Tsakane (56%), Mamelodi (48%), Soshanguve (44%), Kathlehong (41%) and Vosloorus (40%). Khayelitsha in Cape Town recorded a hefty 57% price growth in fourth quarter 2007 while the Durban townships of Kwa-Mashu and Umlazi saw house prices surge by 55% and 48% respectively.

"Admittedly, things have changed somewhat in the past six months," says Gahagan, "but as recently as April reports from Realty1 showed that in the Mafikeng market there is such demand for houses in the R500k price bracket that agents and developers are teaming up to create stock."

In view of this, Gahagan says he has a concern about creating panic in the market. "People are desperate for information at present," he says, "and often comments from property players are sensationalised by the media as a cheap publicity shot, because bad news sells."

Gahagan says he has a very real concern that this could send a wave of panic through the market. "A new homeowner with an R800k property, struggling to keep up with inflation and rate hikes, could well be led to believe his property is now worth 15 – 20% less than he paid for it," he says. "This could lead to panic selling, which is great for bargain buyers but not really in the interests of the economy in general. People forced to sell for less than they owe the bank, for example, end up having to pay rent that is increasing as a result of demand, as well as paying off an outstanding amount on the bond. That leads to desperation and financial ruin."

While Gahagan says he doesn't dispute the various stats on the dropping prices, he doesn't believe it's across the board. "Neither do I think talk of prices dropping by up to 40% is realistic, except perhaps in the upper end, R5m home market," he says. "And while sellers of leisure properties and second homes may well have to lower their prices to get a sale, those who have primary homes should sit tight, get some authoritative advice and some actual sales data, before they rush into action."

Earlier this week Absa stated that it expected nominal house price growth of 5 – 6% for 2008. Taking account of current inflation, this will result in a price decline of around 4,5% this year. "While there's no denying the negative growth, that's a far cry from prices dropping by ridiculous percentages," says Gahagan.

Related articles

  • House price growth at 5-6% for '08

  • Huge growth in township markets

  • Mafikeng's cheap market flourishes


    • Readers' Comments
    The Real Estate sector is certainly vulnerable to the continuing rise in interest rates and what is probably starting to happen is that buyers are going to be far more careful in selecting their first/next property investment. South Africans have traditionally been extremely careless in buying expensive things that are aimed more at keeping up with the Jones's than by filling a vital need in their lives.

    One thing that is certain in real estate is that it can be a wise and safe way to invest for one's future. Benny Steyn

    Regarding this article, one cannot but think that there is a orchestrated attempt by certain companies like yourselves to suppress and deny the public the truth regarding the South African property market.

    One only has to read the newspapers and websites in the UK regarding the issue of property to see the difference between responsible and truthful reporting and reporting done by people with vested interests. Newspapers in the UK are saying like it is, that property is experiencing a serious downturn and houseprices will drop dramatically.

    The local property market is seeing serious negative growth. Interest rates had dropped to record lows and prices skyrocketed. Now interest rates have risen (by 5.5% and rising) and yet we are lead to believe that the property market is still registering growth.

    Companies like FNB and ABSA, with their so called 'bank economists' (John Loos and Jacque Du Toit), have been talking up the market at every turn trying to avoid panic selling. If the property market was so great in their eyes then why doesn't any of these two financial institutions offer 100% bonds anymore and now require a big deposit ? And why does people in the know and who have first hand, real time figures and information like Lew Geffen, Eskel Jawitz and Rael Levitt, people who are warning of falling prices, not given the same prominence as people like Loos and Du Toit?

    The South African property is going to register real negative growth in 2008 and 2009 and it is not going to be just 5% as predicted by Jacque Du Toit from ABSA, a 'economist' who has changed his outlook on property more times than one cares to remember. A figure of 15-20% is more the real figure and there is no denying that. One has to commend Lew Geffen for saying it like it should. Whether you choose to report the truth regarding this fact is up to you.

    I also find it odd that your website does not offer user the opportunity to comment on articles like other News24 website do. Maybe this is part of the orchestrated attempt as I mentioned above or just plain censorship. - Arthur Tsimitakopoulos

    Editor's response
    Thank you for your email. To respond in the order of your comments:

    There is a tremendous amount of hype created around the property price and other economic issues, and it is a fact that bad news does sell. The old adage of 'don't believe everything you read' holds especially true in an economic downturn when media are scrambling for readers and will get them no matter what they have to say.

    I can't answer for the information issued by the bank economists, however I can say that from both a property and a media viewpoint these people are considered authorities and the figures produced are audited and believed to be accurate and reliable. As the marketplace in general relies on their information, so do we.

    No-one denies that the market is in a downturn but the reckless bandying about of unsubstantiated percentages is irresponsible and feeds the media frenzy, to the detriment of particularly the less economically-educated public, whom we believe deserves to hear both sides of the story.

    We do in fact have a comments system which is the link you clicked on to respond. Even the other websites do not automatically publish comments without monitoring them, ours is simply in a different format. I will be happy to add your comment to the article. Ed

    I think people need to reconsider their thought process when it comes to fixed property. Fixed property is like a long-term investment portfolio managed by a proper fund manager.

    You can be guaranteed that over the 15 or 20 years your investment will grow – the reason is: it's a long term investment made on solid research and information by a qualified fund manager.

    When the market takes a dip it's ok because you're in it for the long haul. Over 20 years your investment will be safe.

    The only people that suffer is the speculators. They are in it for a short-term profit.

    So please people treat your home as a long-term investment and don't speculate with it.

    If you bought an average property in 1987 you would have paid +- R80,000 for it. Today it may be worth 10 times as much even now in these times. - Andre Kruger

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