South African house prices are expected to continue to decline in the rest of 2011 and into 2012 on the back of rising consumer price inflation.
In real terms, house prices are expected to continue to decline in the rest of the year and in 2012 on the back of rising headline consumer price inflation, which is forecast to marginally breach the 6 percent level by the end of the year and for part of next year.
This is according to the Absa Housing Review Q4 2011.
The report revealed that the residential property market is expected to continue to reflect conditions and developments with regard to the macroeconomy and the household sector.
Nominal house price growth in the middle segment of the market is forecast to be well within single digits for the full year of 2011, projected at between 2 percent and 2.5 percent.
In real terms, house prices are expected to continue to decline in the rest of the year and in 2012 on the back of rising headline consumer price inflation, which is forecast to marginally breach the 6 percent level by the end of the year and for part of next year.
Absa Home Loans property analyst, Jacques du Toit says year-on-year (y/y) growth in household credit extension including mortgage finance will remain low towards the end of the year and into 2012.
Many consumers are still battling with impaired credit records, negatively affecting their ability to take up credit, he says.
Du Toit explains that the performance of the residential property market at geographical level is also much dependent on regional and area-specific factors and developments.
These may include infrastructure-related aspects, economic growth and the sophistication of economic development, socio-economic conditions, investor focus, location and the relative size of the property market in the region.
This he says may all have an effect on property supply and demand conditions and on the divergence of property price levels, trends and growth at regional level.
The average price of affordable houses (40 -79 square metres) was up to R480 000 in 2011 which increased by a nominal 1.5 percent y/y to around R314 000 in the third quarter of the year with real price deflation of 3.9 percent y/y.
Small houses measuring between 80 and 140 square metres recorded a nominal growth of 3.2 percent and 8.3 real.
Medium-sized houses measuring 141 to 220 square metres, showed 4.2 percent nominal and 1.3 percent real and large houses measuring 221 to 400 square metres, 0.6 percent nominal and 4.8 percent real.
The average nominal prices of houses valued at above R3.5 million up to R12.8 million in 2011 were up by 1.6 percent y/y in the third quarter this year bringing the average nominal price of a luxury home to almost R4.8 million in the third quarter.
The average nominal prices of houses valued at above R3.5 million up to R12.8 million in 2011 were up by 1.6 percent y/y in the third quarter this year bringing the average nominal price of a luxury home to almost R4.8 million in the third quarter. In real terms the average price of a house in the luxury segment was down by 3.8 percent y/y in the third quarter of 2011.
He says in real terms the average price of a house in the luxury segment was down by 3.8 percent y/y in the third quarter of 2011.
Du Toit says interest rates remained stable up to the third quarter of 2011 after the last cut in November 2010.
“Banks’ prime and variable mortgage interest rates are currently at a level of 9 percent, the lowest lending rates since late 1973/early 1974.”
The low variable mortgage rate has the effect of monthly mortgage repayments being 33.5 percent lower compared with December 2008 when the mortgage rate was 15.5 percent positively impacting the affordability of mortgage finances.
He says the affordability of housing remained relatively favourable up to mid-2011.
Many households’ ability to take advantage of these affordability trends is still hampered by a relatively high level of indebtedness, impaired credit records, the impact of the National Credit Act and banks’ strict lending criteria.
He says in the first three quarters of 2011 the growth in the value of outstanding mortgage balances in the household sector was below 2 percent y/y.
The value of new mortgage loans granted by banks in respect of residential property was down by 34 percent y/y in the second quarter of 2011.
Residential building activity showed some improvement in the first eight months of the year compared with a year ago, which are set to be reflected in increased residential investment towards the end of 2011 and into 2012.
According to Statistics South Africa, the volume of building plans approved by local authorities for new houses, flats and townhouses was up by almost 13 percent y/y in the period January to August this year, he explains.
He says the improvement in the planning phase of new housing was evident in the categories of houses smaller than 80 square metres and flats and townhouses, which is an indication of the increasing demand for smaller-sized and higher density housing because of the affordability of housing and mortgage finance as well as rising housing operating costs.
The cost of building a new middle-segment house (80 – 400 square metres up to R3.5 million was 4.5 percent y/y higher in Q3 2011 after rising by 3.6 percent y/y in the preceding quarter.
Factors impacting building costs include material costs, equipment costs, transport costs, labour costs, developer and contractor profit margins and the cost of suitable vacant development land which is impacted by scarcity, the availability of services and the cost of rezoning.
He says the average nominal price of a new house was unchanged at a level of about R1 488 100 in Q3 2011 compared with the same quarter last year.
The improvement in the planning phase of new housing was evident in the categories of houses smaller than 80 square metres and flats and townhouses, which is an indication of the increasing demand for smaller-sized and higher density housing because of the affordability of housing and mortgage finance as well as rising housing operating costs.
In real terms the average price of a new house was down by 5.3 percent y/y in the third quarter.
The average price of an existing house was around R1 050 600 in the third quarter of 2011, 3.9 percent y/y higher in nominal terms but down by a real 1.6 percent y/y.
He says as a result, it was R437 500 or 29.4 percent cheaper to have bought an existing house than to have a new one built in the third quarter of the year.
In Q3 2011, nominal land values for new housing in the middle and luxury segments of the market for which Absa approved mortgage finance were down by 9.3 percent y/y to an average of about R489 000 nationally.
In real terms land values were 14.1 percent y/y lower in Q3 2011compared with a year ago.
In the coastal regions, land values for new housing measuring between 80 – 700 square metres and priced up to R12.8 million increased by a nominal 21.9 percent y/y to around R471 300 in Q3 2011.
In real terms the average price of vacant land for new housing along the coast was up by 15.5 percent y/y in Q2 2011.
He adds that real growth of 3.1 percent is expected for the South African economy in 2011 with growth forecast to rise marginally to 3.4 percent in 2012. – Denise Mhlanga
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