Latest data from the major banks paint a bleak picture of South Africa’s residential property market, with last year’s mini-recovery turning out to be short-lived.
Latest data from the major banks paint a bleak picture of South Africa’s residential property market, with last year’s mini-recovery turning out to be short-lived.
Although house prices were up an average 5% to 7% in 2010 (depending on whether one uses Absa, Standard Bank or FNB’s figures) most indices had slowed to close to zero by end-March. In fact, it now appears increasingly likely that house prices will drop again this year, mirroring the market’s 2009 performance when prices dipped in nominal terms for the first time in more than twenty years.
It’s ironic that this time around interest rates are at their lowest level in 35 years. Industry players blame stubbornly high levels of household debt, an uncertain labour market, banks’ still-high deposit requirements and an oversupply of sales stock for the housing market’s lacklustre performance. Sharp increases in electricity tariffs, municipal rates and taxes as well as food and fuel prices are other factors that are placing home buying decisions on the backburner.
FNB property strategist John Loos says the market won’t be able to avert a fall in house prices this year, particularly now that further cuts in interest rates appear unlikely. He expects an average decline of -1,2% for 2011 as a whole but warns that there’s some downside risk to this forecast given the potential negative knock-on effect that the political unrest in the Middle East could have on oil prices, inflation and interest rates.
Property economist Erwin Rode says there’s no growth left in the housing market for at least the next four years. “`At current levels, house prices are simply too high and prices are likely to continue to contract in real terms until 2015.”
Absa senior housing analyst Jacques du Toit is forecasting house price growth of between 1% and 1,5% for 2011. However, du Toit notes price growth is becoming increasingly location driven, with average forecasts masking the performance of individual regions, cities and suburbs.
In fact, Absa’s housing review for first quarter 2010 shows that there are still areas where property owners are seeing double-digit capital appreciation on their bricks and mortar investments. For instance, Bloemfontein notched up price growth of a healthy 18,3% while prices on the Western Cape’s West Coast and KwaZulu-Natal’s South Coast are still growing at an annualised 21%. In contrast, Durban recorded a drop of -10% while KwaZulu-Natal’s North Coast was down -6%.
Price movements in the ‘new-build’ housing market also differ markedly to that of second-hand homes. Absa’s data shows that the average price for a new house currently sits at R1 497 800 compared to R991 700 for a second-hand one. That means that the privilege of owning a newly built house will currently cost you a whopping 51% more than owning an older house of the same size. That’s the biggest price gap on record. - Joan Muller
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