The residential property market recovery is now officially dead and not even the economic effects or convivial atmosphere of the Soccer World Cup will revive it.

So says FNB property economist John Loos, who adds that in spite of a moderate recovery phase from early-2009 to around mid-year, “here onward I expect to see transaction volumes decline and house price inflation start to taper off”.

So what is the reasoning for the sombre view?

“A lack of interest rate stimulus since the end of last year’s big cuts, and the positive impact of last year’s cuts starting to wear thin. On top of this, recent month-on-month growth in the SARB Leading Indicator has been slowing.

“This, along with other weakening indicators such as a second quarter (Q2) decline in business confidence and a manufacturing PMI declining back to below 50 suggest that near-term economic growth may start to dwindle.

“So, back to single digit house price inflation is my expectation towards year-end. The World Cup has nothing to do with my expectations.”

Jacques du Toit, property strategist at Absa, also says price growth will be slowing down and the main reason for this is the weakening effect of the interest rate cuts.

“The expectation is for year-on-year house price growth to slow down in most segments towards the end of the year, largely as a result of base effects where price deflation slowed down sharply up to mid-2009 and price growth resuming again in the second half of last year.

“The expectation is also for interest rates to remain unchanged during the rest of the year and into 2011 on the back of inflationary pressures, with the housing market thus getting no further stimulus from the interest rate front. The positive effect of declining interest rates in 2009 will also work out of the system towards the end of the year, with consumers’ spending patterns adjusting to the low interest rates.”

Gerhard Kotzé, CEO of the ERA South Africa property group, says he believes the general recovery impetus behind the property market is still very much intact and that realistically this has little to do with the soccer tournament.

“The property market has of course benefited indirectly from the World Cup-related injection of infrastructure and investment spending over the past six years, but there has not in my view been a major direct boost to the market as was touted by some commentators.

“High net worth individuals (HNWIs) attending the soccer showcase may well become buyers of local property after seeing what amazing value we have to offer in rand terms. But essentially I expect this to be at the upper end of the market spectrum in prime areas such as Cape Town’s Atlantic Seaboard and will have little or no impact down the line.

“Fundamentally, the local market continues to show strength in its own right, reflecting the basically sound SA economy, rather than extraneous influences such as the World Cup.”

Kotzé says this view is supported by the latest median house price of R579k furnished by Standard Bank – a figure that continues the rebound from the R500k level recorded in May last year – and the FNB house price index increase of almost 12% on May last year.

He agrees with Loos and Du Toit that the cutting of interest rates is vital in order to boost the residential market. “Interest rates, having been cut by 5,5% between 2008 and 2010, could be cut by a further 0,5% cut when the monetary policy committee meets later this month.

“Should this occur, it will take home mortgage rates to record low levels, providing strong underpinning for a market that has shown recovery but is still labouring under a degree of oversupply in certain price categories and delicate consumer sentiment.” – Eugene Brink

Readers' Comments Have a comment about this article? Email us now.

I totally agree with Eugene.

Over and above that owners are wanting unrealistic prices, this applies to sales and rentals.

I specialise in the Northern Suburbs. Hyde Park, Sandhurst etc.

EXAMPLE

I know of 3 properties these exclusive areas. All one acre - Each Rezoned for 6 Clusters. Asking Price: R6.5million. No takers.

I personally believe it is going to take approximately 4 years for the property market to recover. – Sandton Executive Real Estate