Middle segment price growth down

Middle segment price growth down
2008/05/09

According to the latest Absa house price index, released on Thursday, South African house prices in the middle segment of the market slowed to a nominal 6,8% year-on-year (y/y) in April from 7,8% y/y in March, taking growth to an eight-and-a-half year low.
This is also the fourth consecutive month of single-digit growth in nominal house prices since a growth rate of 11,2% was recorded in December last year.
The latest price is also the lowest since November 1999, when it was 6,5%, and brought the average price of a middle-segment house to about R974 in April this year.
In real terms, house prices in the middle segment of the market dropped by 2,5% y/y in March 2008, compared with a decline of 0,9% y/y recorded in February, based on headline CPI inflation.
"This was the biggest negative real year-on-year growth rate recorded in house prices since May 1997, when it was at a level of –3,4% y/y, based on nominal price growth of 5,7% y/y, and a headline CPI inflation rate of 9,5% at the time," noted the researchers.
On a month-on-month (m/m) basis, nominal house price growth was only 0,2% in April, unchanged from March. In real terms, house prices dropped by 1,3% in March from February. The real price of a middle-segment house has dropped by a total of R19,700, or 3%, from an all-time high of around R651,500 (at constant 2000 prices) in August last year to about R631,800 in March this year.
"Sharply rising CPIX inflation, currently at 10,1% y/y and mainly driven by international oil prices, rand exchange rate and food price trends, the 450 basis points worth of interest rate hikes since mid-2006 on the back of inflationary pressures, a significant slowdown in growth in real household disposable income in 2007 and the full implementation of the National Credit Act (NCA) in mid-2007, are factors having a negative effect on the affordability of housing," said the researchers.
They said these trends have caused the focus of homebuyers to have shifted from luxury, large and expensive properties to smaller and more affordable properties in recent times.
"As a result of these developments, the downward trend in year-on-year house price growth has accelerated since September last year. With inflation still under strong upward pressure, inflation expectations will remain high over the short term, which will have a significant influence on demands for higher wages this year," they say.
Against this background, the Reserve Bank's Monetary Policy Committee is expected to hike interest rates by another 50 basis points at the June meeting.
In view of these developments and expectations, house price growth is forecast to slow down even further in the rest of 2008 from current levels, says Absa.
Nominal price growth of well below 10% is projected for the full year, with real price growth expected to be in negative territory, which will be the first annual drop in real prices since 1999, when it was -0,3%. – I-Net Bridge

Middle segment price growth down

 

'No house price recession'

 

The residential property market faces a mild cyclical downturn, says Standard Bank. The market for cheaper properties has already picked up.

'No house price recession'

Overpricing is the real culprit

Overpricing is the real culprit
2008/05/05

Sellers, not legislation, nor rising interest rates or estate agents, was cited as an unnecessary major contributor to the residential property market's slowdown.
While it was an undisputable fact that the South African economy had become entangled in the global credit crunch, its effect on the market along with rising interest rates was "being largely overstated", says Jeanne van Jaarsveldt, marketing and finance director of RE/MAX of Southern Africa.
"Undeniably, the biggest sheet anchor on the movement of residential property right now is overpricing and this can be substantiated by the number of sales being concluded after negotiation on price."
According to the FNB property barometer, for the first quarter released earlier this week, the percentage of properties sold at less than asking price was 83% and 82% in the last quarter of 2007.
Van Jaarsveldt insists that it is important that sellers realise the slowdown in the South African property market was a direct result of financial fundamentals of a global nature and not part of a national conspiracy engineered by the Reserve Bank, the commercial banks or estate agents.
To blame the Reserve Bank was unfortunate as it was only exercising its appointed role of controlling inflation through the traditional tool of interest rate adjustments. It was also unfair to fault other market influences, such as the state, banks and estate agents. The reality was that South Africa, just as other international economies, had been snared into the global credit crunch, which was creating uncertainty and grinding down market confidence.
"In New Zealand we have seen residential sales plummet by more than half in the past month over March of last year while Britain's annual rate of house price growth in the first quarter of 2008 was 2,2%, down from 6,9% at the end of 2007. House prices slowed even more sharply in Northern Ireland where the annual rate of appreciation fell from 24,2% to –3,4%.
"Sales have also fallen in the US with prices flattening out while in Australia that country's national estate agent body heaved a sigh of relief almost audible enough to be heard in South Africa after its Reserve Bank held rates steady this month after hikes in both February and March which left home owners reeling from the accumulative effects of the increases."
Van Jaarsveldt urges both sellers and buyers to maintain perspective of the market and particularly it's strengths as opposed to exaggerating its weaknesses, which had become overly fashionable. Of importance, and this only applied to the South African market, was the continued emergence of the black buyer.
"Some commentators believe this source could run for 20 years before a burnout, but the importance of this feature is to understand that its former momentum has only been briefly stalled and will resume once affordability begins to improve among state employees."
Also pertinent, even in the current slowdown, house price growth was still increasing, admittedly of a slower nature. Sales in the lower end of the market were also still active, but to van Jaarsveldt, the biggest indicator underpinning a recovery was the lack of new building taking place.
The pace of new residential developments had slowed markedly with many developers at their wits end trying to successfully mix the cost of new building land and materials with affordability. Further shrinkage in new unit supply was inevitable and this, perhaps more than any single feature, would fuel second hand stock prices unrealistically when the market turned.
For more information contact Jeanne van Jaarsveldt on 021 761 1110.
Readers' Comments
Have a comment or question about this article? Email us now..
Interesting comment but he fails to point out that overpricing can only be in place if estate agents support it. It is either due to inexperienced, unsupervised canditate agents or the greed of experienced agents and the frenetic clamour that is deliberately created by some agents to cause confusion to potential sellers. - Tony Penfold

Overpricing is the real culprit