Perhaps Silver Lining for SA Property Market

Standard Bank Downplays Market Slump

An article published on the Business Report website reports that Standard Bank expects a “relatively mild cyclical downturn rather than a full-blown recession” when it comes to the residential property market. The Bank made this prediction despite releasing its own property gauge results, where the median house price fell from R550 000 in March to just R530 000 in April. At this rate, prices would fall by nearly 44% in a single year.

The decline since the same time last year translated into a negative annual growth rate of 8.6% and minus 2.8% has been recorded for the five month moving average growth rate year-on-year. However, the Bank insists that its figures should not be taken at face value and interpretations should be made with caution before making assumptions.

Leon Barnard, director of Standard Bank’s personal and business banking products, says that property is still one of the best investments and has shown good results over time. However, he added that, “There is no denying that South African consumers are starting to feel the pinch of increasing inflation and the higher interest rate environment. Property prices have cooled off dramatically in the past few months as a consequence of these environmental pressures”.

Barnard acknowledges that the current figures may “raise some concern”, but on closer inspection, he believes that they reveal a more graduated picture. “Firstly, it is the uppermost sector of the property market that has cooled off the most. We are starting to see increased levels of activity in the lower property segments. It’s not all doom and gloom. Standard Bank is actually pleased with the performance and resilience being seen in the lower spectrums of the property market”, this according to Barnard.

Standard Bank has indicated that the base value from which its most recent and pending year-on-year growth rates have been calculated was set at a relatively high level last year. This was due primarily to the temporary upward adjustment in the distribution of mortgages entering the home loans sector in the months leading up to the National Credit Act’s implementation.

The residential property gauge showed that the risk of national house price deflation had risen further and that there were areas possibly already experiencing price deflation, albeit from a high base point. Houses were increasingly being sold for less than the asking price and were staying on the market for longer periods of time. There was also anecdotal evidence of an increase in the stock of houses for sale and an indication of more distress selling.

The Bank says, “This suggests that sellers have to revise their price expectations downwards, placing downside risk to house prices”.

The information in this article is courtesy of Wiseman Khuzwayo (“Standard Bank downplays house slump”, Business Report, 11 May 2008).

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