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South African property market far from flat

It’s no secret that the current residential property market is sluggish: homes are often on the market for longer, prospective buyers struggle to obtain home loans and the overall economy is causing people to tighten their belts, not buy property.

International property markets

According to economist Mike Schussler the global situation reflects this trend:  since 2007 house prices in the United States, Germany and the UK have steadily decreased and Asia isn’t looking much better with prices having gone down significantly in Japan and China. In comparison South African figures have done relatively well and with fewer dips. “The local market, whilst no longer as robust as during 2007/2008 is far from flat”, believes Jan le Roux, CEO of Leapfrog Property Group.

While it might be some small comfort on an emotional level to realise that the slow moving property market in South Africa is by no means unique, the local market, whilst no longer as exciting as during 2007/2008, is solid and safe.

State of the local real estate industry

While the June Property Barometer released by FNB indicates that property prices are stabilizing over time, when viewed on a month-to-month basis the picture looks rather different: “From a peak of 1.65% in January, month-on-month seasonally-adjusted house price growth has slowed to 0.82% by June”. The report suggests that this deceleration indicates that the market is reacting to short term fluctuations in the economy as well as signs that the local economy is slowing down.

The latest ABSA House Price Index corroborates these findings stating that: “…house price growth will remain relatively low over the short to medium term, set to be affected by economic developments impacting household finances, consumers’ risk profile, levels of confidence and housing demand and supply”.

The second quarter’s FNB Estate Agent Survey that was released on Monday reveals that agents perceptions are that houses are remaining on the market for longer – up from 15 to 17 weeks. Agents are also finding that many sellers still need to drop their asking prices by ten percent; possibly due to a lack of pricing realism in the market.

According to the Global Property Guide there are also several risk factors to keep an eye on in the following months:
• an uncertain economic recovery
• declining infrastructure investment
• more housing supply than demand, thus falling rental yields
• financial pressures on households
• rising mortgage interest rates, to counter rising inflation
• political concerns, as president Zuma turns up the populism

“While the market is not exactly buoyant at present, investing in property is a long term game and, viewed over a prolonged period prices are steadily increasing; purchasing a property remains one of the best investments the average South African will ever make,” says le Roux.

Buyers vs sellers?

“If you need a place to live in, by all means buy now. If however, you’re looking to buy-to-lease I’d advise you to wait as rental returns at present aren’t excellent,” says le Roux.  There are also a few issues to bear in mind: the local market in no way resembles that of America where properties are now frequently worth less than their mortgages and homes can be snapped up at bargain prices. The local property market has fared much better during the current economic downturn and prospective buyers will have to hunt for bargains.

That being said, house prices have not kept pace with price inflation since the 2008 heydays andbanks, notably ABSA, are eager to regain their market share in the mortgages market, and have duly relaxed their loan requirements. This shift is good news for buyers as obtain a mortgage has been difficult in recent years due to especially stringent requirements.

Does this mean sellers are in trouble? It all depends; the right property, in the right area and, importantly, at the right price will sell. However, now is a good time to hold on to your property from an investment perspective”, believes le Roux, “should a seller now, for example, be re-locating it is always a good time provided you sell under the same market conditions in which you will be buying, you are just exchanging properties.  Selling at a lower price implies buying at a lower price whereas waiting for a better return on your current property would mean paying more when you buy the next.”

Article sourced from the July 2012 Leapfrog Property Group Newsletter

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