Improved House Price Growth, Buy Now!

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01 Mar 2012

FNB has revised its average house price growth forecast for 2012 to 4.2 percent from a previous rate of 2 percent, according to the latest report.

This three bedroom apartment set on the beach in Umhlanga Rocks is selling for R4.950 million through Seeff Umhlanga.

The bank says this remains slow but would be slightly faster than the 3.2 percent recorded in 2011.

The FNB House Price Index report for February reveals that house prices grew slightly from 6.1 percent in January to 6.6 percent year-on-year (y/y) in February.

The report notes that this is the highest y/y growth since July 2010.

Writing in the report, FNB Home Loans property strategist John Loos says the improvement in house price growth is attributed largely to a late-2011 uptick in real economic growth.

South Africa’s gross domestic product number for the fourth 4 quarter recorded an annualised rate of. 3.2 percent higher than the previous quarter figure of 1.7 percent.

Loos explains that early 2012 may see an increase in levels of home loans bank competition levels, as market share becomes the key focus.

Lenders and borrowing households alike are generally “pro-cyclical” in their behaviour and as the recent history improves and bad events such as the 2008/9 recession and the 2008 interest rate peak fade in the memories, so too their perceptions of risk usually improve.

He points out that the house price growth and the relatively high February rate of 6.6 percent y/y will probably not be sustained for more than a few months.

“With our expectation for slower economic growth in 2012 (compared to 2011 as a whole), despite the late-2011 uptick, we would continue to expect slow single-digit house price growth,” he says.

Meanwhile, Absa reports that mortgage advances growth remains low in early 2012 and January recorded growth of 6.1 percent y/y in the value of outstanding credit balances to a level of R1 186,2 billion.

The Absa Mortgage Advances report shows that on a monthly basis household credit was up by R8.7 billion or 0.7 percent in January from December.

The value of outstanding private sector mortgage balances at monetary institutions, which includes both commercial and residential mortgage loans, increased by 2.4 percent in January (2.5 percent in December).

Absa Home Loans property analyst Jacques du Toit says the value of outstanding mortgage balances in the household sector was up by 1.6 percent y/y in January to an amount of R773.5 billion, which came to a share of 65.2 percent of total household credit balances.

Month-on-month growth of R1.1 billion or 0.1 percent was recorded in household mortgage balances in January compared with December.

Du Toit notes that real economic growth of 2.8 percent is expected in 2012 (3.1 percent in 2011), consumer price inflation is set to remain above 6 percent, interest rates will remain stable until late this year, real household disposable income is projected to grow at a slower pace than in 2011.

An upmarket three bedroom family home in Plumstead, Cape Town is on sale for R1.2 million through RE/MAX Ultra Select.

The household debt-to-income ratio is forecast to remain around 75 percent and many consumers are still struggling with impaired credit records, he says.  

Absa says the residential property market is forecast to continue to show some subdued growth in 2012

He says mortgage advances growth is set to remain well in single digits up to the end of the year.

Despite gloomy figures from the banks and property analysts, estate agents on the ground say properties that are priced right are finding buyers quite fast and first-time buyers in some areas are getting good deals.

Director of Seeff Umhlanga, Brett Botsi says that the KwaZulu-Natal property market is currently offering golden opportunities for first-time buyers and investors alike.

Sellers are now prepared to negotiate on their selling prices and the banks’ approval rate of bond applications is close to 50 percent.

Botsi says buyers express positive sentiments about the property market and the opportunities it provides.

In Umhlanga Rocks, a total of 237 units were sold in 2011, exceeding the value of R630 million, a 0.95 percent increase from 2010, he says.

He says there is constant interest in properties in Umhlanga, most of it local interest and activity with foreign buying making up about 5 to 10 percent.

Property in Umhlanga Rocks is considered more of a ‘blue-chip’ investment with returns being realised over a longer period - a hedge against inflation, he says.

Family home buyers are said to be looking for affordable homes in the Western Cape region and priced below R1.5 million.

Mark Brickles, broker/owner of RE/MAX Ultra Select, which operates in regions Grassy Park, Strandfontein, Zeekoevlei, Muizenberg, Ottery, Lansdowne, Rondebosch East, Plumstead and surrounding areas says family homes will be in demand this year.

These are mostly sold to the middle-class man on the street looking to pay no more than R1.5 million.

Brickles reckons the affluent areas are still unaffordable for many potential home buyers and the top end market will remain sluggish due to affordability.

“Family homes that offer more bang for the buyer’s buck will be sought-after by property investors,” says Brickles.

He says that Cape Town’s southern suburbs below the main road, M5 and railway line will be the areas in which buyers will be able to find these affordable homes.

Pam Golding Properties is selling this 1000 square metre property for R1.95 million in McGregor.

An area such as Rondebosch East, for example, can reflect a difference in price of R1 million or more in most cases, to a very similar property in Rondebosch, even though these areas are only separated by one road.

These family homes offer buyers the greatest value and lowest cost per square metre.

Often buyers looking to buy a small two bedroom flat of between 50 square metres and 60 square metres will only pay between R200 000 and R300 000 more for a three-bedroom family home on a 500 square metre plot in the same area.

He believes these homes are currently undervalued because although many middle-class buyers were interested in these properties, they were unable to qualify for home loans due to high debt levels, which in turn led to an oversupply. 

Now that many of these buyers have significantly reduced their debt levels and are obtaining home loans, they are back in market and snapping up bargains, says Brickles.

Property prices are reportedly holding their own in the Western Cape village of McGregor, located at the foot of the Riviersonderend Mountains, some 20km from Robertson

Pam Golding Properties (PGP) reports that the number of sales concluded in the village has nearly doubled over the past year, while the average selling price has gone up around 17 percent.

PGP says buyers were mostly South African including a number of retirees, young buyers and those looking for a weekend getaway or to rent out to weekend users in the area.

An entry level cottage in good condition can still be obtained for around R800 000, with the price tag increasing to around R1.2 million for a small house and R1.8 million for larger family homes.

PGP notes that while there is less appetite for the top end of the market properties currently (these are priced over R2 million by McGregor terms), a number of young buyers are purchasing older homes to renovate for personal or guesthouse use.

Some existing McGregor residents have also purchased second properties to renovate and generate rental income, says PGP. – Denise Mhlanga

About the Author
Denise Mhlanga

Denise Mhlanga

Property journalist at

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