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Still good, but down slightly…

09 June 2005 Angelo Coppola

Standard Bank launched their own quarterly residential property price report, and speaking at their launch Elna Moolman, from Standard Bank economics division, said that house prices increased by 24.3% in May, while projections for the year are that this

Matthew Cook, from Standard Bank Home Loans, explained the house price indices and the effect that investors have on house prices, in the focus for their first report.

He explained that they use the Deeds Office data, as everything has to be registered here. This is the most comprehensive database available. The rider is that there is a lead time for data from the deeds office is between three and six months.

Based on the Deeds office numbers and their own research Cook says that the median value of a residential property was R390 000 for the first quarter of 2005. The bank uses a median house price as apposed to an average house price, which is in the region of 25% more.

The market split

Cook says that the luxury property market has not grown as fast as the rest of the market for the most recent period.

In the past the luxury properties have grown faster. More recently the middle of the market houses sector has grown faster, while houses at the bottom of the market have grown the slowest, due generally to a lack of a secondary market.

Sectional title properties are also increasing in percentage terms, while metropolitan growth has been substantially higher than non metropolitan suburban growth. On a regional level Durban and Cape Town showed higher growth than Pretoria and Johannesburg last year.

The role of property investors

In terms of the property investors, Cook says that the investors’ role is that they will generally accentuate any market movement, either in growth or shrinking interest, with their involvement in the property market.

There has been a steady growth in the number of investors, while the percentage of properties they own has not increased as much, and this could mean that there is a fair growth in the number of new investors into the property sector.

It does seem that residential property is loosing its lustre in terms of an asset class.

MPC

On the other hand Moolman says that the housing boom of last year was driven largely by the interest rate cuts. And while the inflation outlook remains friendly, and the governor shouldn’t increase rates, the percentage is nearing the target ceiling.

She expects the prime rate to remain at the same levels, and the MPC should maintain at the same level for some time. Having said that, the mortgage affordability levels seem to be marginally deteriorating.

In terms of the outlook, one should look at the total affordability of all debt and whether this can be serviced. There is only a marginal increase in repayment of debt for the last two years. There doesn’t seem to be a problem, however, in terms of affordability when it comes to buying residential property.

Moolman says that tax cuts, income growth and the wealth effect of property prices seems to be supporting increased property prices.

Black buyers

The socio-economic transformation is also becoming evident, as some 163 000 black people have entered the upper 9 and 10 LSM brackets in the last three years.

While there is still a concern of a property bubble – these concerns are exaggerated, says Moolman. Some analysts use the building costs as a barometer, while Moolman says that this doesn’t include the value of the house or the land.

Moolman says that all of the drivers point towards a lively property market, although the growth rates of last year are a thing of the past as they don’t expect any new stimuli. This should be between 18%-25% for this year, coming down from 28% last year.

Quick Polls

QUESTION

The second draft amendments to Regulation 28 will allow retirement funds to allocate up to 45% of their assets to SA infrastructure, with a further 10% for rest of Africa; but the equity & offshore caps remain unchanged. What are your thoughts on the proposal?

ANSWER

Infrastructure? You mean cash returns with higher risk!?!
Infrastructure cap is way too high
Offshore limit still needs to be raised
Who cares… Reg 28 does not apply to discretionary savings
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