Rates start to take toll on property prices
It appears that the Reserve Bank's interest rate policy is finally having an impact on local consumers, especially where big-ticket items are concerned. This statement is supported by a drop in new vehicle sales for April, and the continued decline in an
The National Association of Automobile Manufacturers (Naamsa) announced on Thursday, 3 May 2007, that total vehicle sales of 43, 588 were 4.4% down on the previous year. Perhaps more telling is the 15.9% drop in the number of new passenger car sales. It seems the rate hikes are impacting on private citizens more than on businesses. The sale of business vehicles remain robust as corporate South Africa struggles to meet the demands induced by a consistently growing economy.
Standard Bank's latest house price survey shows that annualised house price growth has slowed again in April 2006. The impact of rising interest rates and higher levels of consumer debt have resulted in growth falling to an annualised 7.4% in March 2007 as opposed to 8.4% the previous year.
Standard bank believes the decline would have been more severe if it were not for supply constraints propping up the market. This shortage was most prevalent in the lower end of the housing market. Standard banks median house price remained unchanged at R580, 000 per unit.
Prices growth slowing since June 2006
Quoted on Fin24, Standard Bank economist, Elna Moolman noted that "house price growth has been slowing since mid-2006, curtailed by higher interest rates and loss of momentum in the absence of fresh stimuli."
A number of other statistics also show a definite slowdown in the residential property market. New plans submitted to town councils have been lower in the first three months of this year than previously. It appears that many property developers are adopting a wait-and-see strategy in the short term - particularly in the higher end of the market.
Stagnant house prices pose a considerable threat to property developers. Developers are unable to attain higher prices from the end consumer despite having to absorb the rising costs of building material and labour inputs. The result could be a further reduction in new property stock reaching the market - thus further supporting the prices of property as the market turns down.
Investors feel the pinch in US and UK
It is difficult to get a clear view of the impact of the US housing market recession on South Africa. Many experts claim that our market is too far removed from the US market to draw any parallels.
Our concern is the similarities that we've observed. Firstly, American household debt as a percentage of disposable debt has been rising - as has South Africa's. Secondly, the American economy has been creating jobs over a number of consecutive periods - as has South Africa. And finally, American property investors enjoyed an unprecedented growth in property values, with many of them purchasing second and third homes as investments. Ring any alarm bells?
Only the nave would believe that an economy could be completely immune to a slump. All sectors of the market go through boom and bust periods - and there is no way the South African property market is any different.
Editor's thoughts:
The South African housing market is different to that experienced in Western democracies. Our government is making a noble attempt to provide housing for all of its citizens. Do you believe that South Africa has a dual property market - one being the social housing department and the other being the commercial market that you and I partake in? Send your comments to [email protected].
