More Doom & Gloom for SA Property Market

ABSA Predicts House Price Fall in Real Terms

An article in Business Day reports that soaring interest rates and rising inflation are continuing to worsen residential property woes, with house prices in the middle segment of the market dropping 2.5% in real terms year on year in March.

According to ABSA’s latest house price index, growth slowed to just 6.8% year on year in April, which is the lowest level recorded in over 8 years. To top it off, the worst isn’t over yet, with more bad news expected in the short term and further real terms price drops anticipated during the year.

Senior property analyst for ABSA Home Loans, Jacques du Toit has said that, “Currently we are looking at an overall drop in real terms of just over 4% (for the year). In nominal terms, growth of between 5% and 6% is expected for this year”.

He added that higher interest rates were forcing real prices down and that households were also under increased pressure from rising food and fuel prices. But apparently there is a silver lining in that people who are looking for property can expect prices to become more realistic as the year progresses.

Du Toit said, “Towards the end of this year and into 2009 will be the time to buy property because we expect the property cycle to bottom out in 2009. Following this there will be a gradual recovery when interest rates start to drop”.

Property economist for Viruly Consulting, Francois Viruly expressed little surprise at the state of the current figures, but did say that the lower end of the residential property market had “kept on doing relatively well”. He expects the downturn to be a “fairly short term dip”.

Viruly believes that, “The market is adjusting downwards…during the course of next year, we will start seeing interest rates declining and this scenario is going to turn around and next year should be moving back into double digit growth”.

Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty pressed that it was important to remember that, “until January there were no real problems in terms of price decreases”. The panic is said to have set in then and during the last three months, the real damage has been done (Geffen).

Geffen believes that ABSA’s figures are somewhat “skewed” due to the fact that they are using “year-on-year growth” with three quarters of the year having experienced a “normalized” property market. “I think we are definitely in a property recession. I think it’s exacerbated by sentiment,” but there are positives in that people will become used to the “status quo and sentiment should improve by the year end” (Geffen).

Nominal house price growth topped more than 35% at the end of 2004 and since then growth has been on a downtrend, as the relatively expensive property market caused demand to taper off. Over the last two years, the rise in interest rates has further hampered growth prospects in the residential property market.

The information in this article is courtesy of Nick Wilson (“South Africa: House Prices to Fall in Real Terms – Absa”, Business Day, 9 May 2008).

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