South African Homeowners Face Troubled Times

Homeowners Feel the Pinch

An article in The Times reports that more repossessions are bound to be on the cards as South Africans face yet another interest rate hike. There is simply no good news for homeowners trying to sell their property, as the latest house price survey reflects a dip that has not been seen since 1999.

To make matters worse, if you have put your house on the market, you can expect to get up to 40% less than your initial asking price by year-end. The property boom bubble of previous years is steadily deflating in the current down cycle.

ABSA’s House Price Index, which was released yesterday, recorded single digit year-on-year nominal growth of 4.3% in May, down 1.2% from the 5.5% recorded in April – this translates into the slowest house price growth in 9 years. The average price of a mid-sector house dropped to about R960 700 in May, from an average R974 000 in April.

The ABSA index bases its figures on the total purchase price of houses in the 80m² to 400m² size category, valued at around R2.9m or less in 2007, including any home improvements and for which loan applications were approved.

The Bank expected the Reserve Banks’ Monetary Committee to introduce a 100 basis point interest rate hike next week, with the potential for further rate hikes if the CPIX (inflation mortgage costs) remained “stubbornly high”.

Property analyst for ABSA, Jacques du Toit said that more people were selling homes than there were buyers in the market, as the broad economic conditions started to have an effect on the affordability levels of consumers.

“We anticipate and expect property repossessions to pick up, but coming from a low base. The repossessions would not be isolated to a particular market segment; it would affect virtually all segments of the residential property market. The increase of stock in the market is a reflection of the financial difficulties that people are going through,” du Toit said.

Lew Geffen, head of Lew Geffen Sotheby’s International Realty said, “It’s a question of being truthful to your clients to save them severe pain by procrastinating and not accepting the offer today. Today’s low offer is tomorrow’s miracle price. This market is not going to recover any time soon”.

Geffen believes that the property market will come down by a significant 40% from the unbelievable highs of 2007, adding that there are already 60% less buyers in the market today, compared with the same time last year. Looking at the bank requisite of between 5% and 25% equity for property purchases ranging from R800 000 to R4m, indications are that the market is expected to drop another 25% on top of the current estimate of 15%.

As Geffen says, “Take into account that today a man who wants to purchase a R2m property, which is the average selling price in our company, will have to earn more than R87 000 gross per month in order to qualify; and if the market drops by 25% that same person will need to earn R65 200 gross, which is also no picnic”.

The Tenant Profile Network (TPN) is a registered credit bureau that provides tenant rental payment profiles for property managers and landlords and reports an increase in demand for rentals as compared to a year ago.

Managing director of TPN, Michelle Dickens said that the company had also witnessed a trend towards six month versus twelve month lease periods, in a bid to increase rentals and meet mortgage repayments. National rental averages are up to R4000 per month. There has also been an increase in properties initially put up for sale that have now been put up for rent to cushion the longer period of waiting for an offer to purchase.

“Demand for rental property is far outstripping market availability. Estate agents are now at the reverse effect of a property sales boom and are sitting with an over-supply of stock,” said Dickens.

The Alliance Group specializes in auctions and reports that countrywide they have a thousand houses up for sale from execution, repossession and insolvency. The company predicts that thousands of families will lose their homes by the end of the third quarter of the year.

The information in this article is courtesy of Xolile Bengu and Simpiwe Piliso (“Homeowners feeling down”, The Times, 1 July 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.