South African Property News

Property Barometer At All Time Low

An article on the Dispatch website indicates that the First National Bank (FNB) residential property barometer has recorded an all time low for any quarter measured since its launch in 2003.

The barometer measures commercial activity in South Africa’s major urban centres on a scale of 1 to 10 and has dropped from 5.09 in the previous quarter to 4.96 in the first quarter of 2008.

FNB has reported that up to 83% of people selling their homes have been forced to accept much lower offers than their asking prices, making the South African property market decidedly in favour of buyers. The average time that a house stays on the market has risen from 11 weeks and 2 days in the previous quarter to 12 weeks and 4 days in the most recent quarter.

Economists at FNB have said the deterioration in the market is due to a “sustained regime of interest rate hikes and rising inflation eating into disposable incomes”. They also argue that a general erosion of sentiment has been caused by a slowing economy, most notably since the political change that occurred in Polokwane in December and the current energy crisis being experienced in the country.

The slow activity in the coastal market is evidence of a changing appetite for luxury holiday homes, which FNB property strategist John Loos believes is “the result of rising interest rates impacting to a greater degree on non-essential holiday buying than on primary residential demand,” with Gauteng “more dominated by the latter form of demand making it slightly less cyclical than the coast”.

According to FNB, the rise in consumer price inflation has had more of an impact on the lower-end residential property sector, which has been attributed to essential items such as food and petrol that carry a larger weight in lower income groups.

FNB has said that while the higher end of South Africa’s residential property market looks healthier in the first quarter than the lower end, the barometer has picked up a substantial increase in the number of properties sold in order to emigrate than compared to the previous quarter.

However, in light of the future, FNB believes “that unease over political uncertainty will subside. Furthermore, we are seeing certain market fundamentals improving, notably a strengthening rental market which would at some stage improve buy-to-let attractiveness, as well as sharply slowing residential building activity which will help to bring supply more in line with demand”.

The determining factor in terms of the overall market recovery is deemed to be how interest rates pan out. “We believe that the market will be looking for very strong evidence that rates are set to decline before demand and activity levels gradually start to recover”. This is only expected late in 2008.

The information in this article is courtesy of Dispatch Online (“Property barometer drops to its lowest level”, 22 April 2008).

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