SA Property Market on Shaky Ground

Recession on the Cards?

An article published in The Times has drawn attention to the current downtrend in the property market, indicating that property values have plummeted by nearly a tenth in just a single year. In fact, where house prices were at one stage stalled, now they’re falling.

According to mortgage data garnered from Standard Bank yesterday, the median property price in April was R530 000, which is down R20 000 from the figure for March and down 8.6% from April last year. Standard Bank’s property gauge uses the mid value of home loans granted in a month, which is unlike Absa’s report on an average monthly mortgage value.

Standard Bank has said that prices are down from a really high base set last year, due to buyers racing to beat the requirements of the newly instated National Credit Act. But the bank’s property economist, Sizwe Nxedlana indicated that the current drop in prices reflects a correction and is unlikely to be the start of a housing recession.

Nxedlana said that consumers are feeling overstretched as a result of higher interest rates, increased fuel costs and the rise in inflation. He also suggested that the year-on-year growth rate is indicative of an overall downward trend in the growth of house prices, which is due ultimately to falling demand and the fact that buyers can afford less.

“You cannot sell property today for what you could have sold it for 20 months ago. The level of debt in SA has increased over the last few years and debt repayments as a percentage of disposable income are approaching historic highs at nearly 13 percent. This is higher than two years ago, where it was less than 10 percent in a more favourable interest rate environment,” according to Nxedlana.

In response to concerns about the local residential property market falling into a recession similar to that playing out in the US, Nxedlana says that, “Our analysis of the sources of the US housing market recession highlights the vast differences in what is driving current trends in the two housing markets and suggests that a housing market recession in South Africa similar to that happening in the US is unlikely.”

Apparently, the local residential property market has the advantage of stricter lending policies, which could be the market’s saving grace in the long run, according to Nxedlana.

The information contained in this article is courtesy of Xolile Bhengu (“Property on Shaky Ground”, The Times, 7 May 2008).

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