Local housing market slams on the brakes
After being bombarded for so long by reports from banks and real estate groups it was refreshing to receive some commentary on the domestic housing market from online property advertiser Property24. This Media24 offshoot claims to be South Africa’s top property site, independently verified by Nielsen/Netratings which show 60% more traffic than the site’s nearest competitor. Advertisers on the site account for approximately R16bn in sales each year.
The website’s analysts collated data from 4 000 estate agent offices for the period July 2006 to December 2007; and their findings confirm that South Africa’s residential property market is under severe pressure.
Forget the quick sale
One of the first warnings of a property slowdown is that the time taken to sell a particular property increases considerably. The result is that both the number and frequency of house sales taper off. Residential sales through the Property24 website have slumped by 20% during the review period – a trend which general manager Christo Wiid says “has highlighted the slower turnover of properties in recent months, where the time taken to sell a home has doubled from a 90 day timeframe to 180 days.” This is a frightening static for any homeowner hoping to make a quick sale. And inevitably people desperate to sell a property respond by dropping their asking price even further.
Standard Bank’s Residential Property Gauge (for January 2008) confirms that median house prices have not grown in the last two months. That’s zero percent growth in December 2007 and the first month of 2008. They note that the average growth rate has slowed to 4.4% which is the lowest rate since November 2000. And they expect conditions to remain tough until the last quarter of 2008 when an expected interest rate cut will improve affordability in the market. Fanews Online believes we might have to wait even longer for a reversal in the current trend. Investors hoping for real returns in this asset class in the next two years will be sorely disappointed.
Expect 15% below asking price
Further evidence to support that we’re in a buyers market is that fewer houses are achieving the asking price. Wiid notes that the gap between asking and selling prices continues to widen. The result is that properties are changing hands for between 15% and 20% less than their asking price. That means someone putting a house in for R1.5m may have to settle for R1.2m – or R300 000 less than initially hoped for. And the higher up the ladder you go, the more the ‘discount’ becomes. When last have you seen a residential property advert trumpeting: “Price reduced by R1.5m…?”
Standard Bank’s Residential Property Gauge states that the current “stagnation in house price growth is a function of the deterioration in housing affordability.” And we all know what is behind this trend. We have witnessed a reversal of the 650 basis point drop in interest rates that fuelled the residential property price boom between May 2003 and April 2005. The reversal came in the form of a 4% surge in interest rates since, meaning that average earners are struggling with the double blow of inflated property values and interest rates at August 2003 levels.
The group notes that bond instalments on an average property (they reveal a median value of R570 000 at present) are 30% higher than two years ago… And “the increased rigour in the granting of credit that has been brought about by the National Credit Act (NCA) is curtailing the demand for residential property and contributing to the softening of house prices.”
Changing landscape
Prices are under more pressure inland than at the coast. “As the inland areas comprise the majority of residential property sales in South Africa, this translates into a significant effect on the industry. In short, the figures reflect a property market that consists of fewer houses being listed for higher prices, that are taking a good deal longer to sell,” Wiid said.
Editor’s thoughts:
We expect property prices to come under further pressure in the second half of 2008. Disposable income continues to shrink under the onslaught of higher fuel and food prices; as well as the higher interest rates. And this will lead to more forced sales of residential property... Do you think the growth in residential property prices will fall further – perhaps going negative in 2008? Add you comments below, or send them to [email protected].
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