Property prices in the residential property sector are unlikely to rise this year because of low demand for new homes coupled with high levels of debt among consumers.
Residential property prices are unlikely to rise this year because of low demand for new homes coupled with high levels of debt.
The year-on-year house price index increased by just 1,4%, considerably lower than December’s revised figure of 3,1% and was driven by weak growth in demand for houses as property owners appear to consolidate their financial positions.
John Loos, property strategist at First National Bank (FNB) says that the poor price growth is the result of weak demand and high levels of household debt relative to disposable income.
“Strong residential supply [of homes], an overhang from the building boom of a few years ago, as well as high levels of financial pressure-related selling play a key role,” says Loos.
FNB’s valuers believe the market is unlikely to improve much this year and the Valuers’ Market Strength index has increased to +0,152 from +0,142 in December.
“The collective opinion of valuers is that demand relative to supply has weakened further from a rating of -0,209 in December to -0,235 in January and is a continuation of a weakening trend in the Market Strength Index going back to July last year,” says Loos.
Turning to the inflation rate, Loos says local inflation levels are “far from troublesome” with the December CPI inflation rate recording a low of 3,5%.
“We believed that the rate cut cycle has ended and that we could see the start of a hiking cycle starting early in 2012,” he says.
“The two successive interest rate cuts in 2010 have done little to halt the declining trend in house price growth and continues to be reflective of the significant financial pressure and high levels of debt still being experienced by the household sector.
“We see the property market remaining flat with average price growth close to zero for 2011,” says Loos.
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