09 Sep 2011
Currently, low house prices and interest rates offer a once-in a lifetime opportunity for buyers to enter the residential property market.
Standard Bank Home Loans reports that while house price growth remains lacklustre, the current property market conditions do present an opportunity for buyers who can demonstrate affordability.
This follows the banks Median House Price Index report that indicates that house prices grew by 1.6 percent year-on-year (y/y) in August from 2.4 percent y/y in July.
Research analyst for Standard Bank Home Loans, Sibusiso Gumbi says house prices are still way off their boom levels in most areas and interest rates at their lowest levels in more than 30 years.
A low interest rate environment allows individuals to qualify for larger loan amounts or pay lower instalments on a loan than would otherwise be afforded.
“The economy’s strong first quarter performance was not repeated in Q2 2011 as consumers continue to bear the brunt of rising inflation, tepid credit growth and a struggling labour market,” says Gumbi.
He says consumers are facing tough times currently and looking ahead, the residential property market is likely to remain subdued for the remainder of 2011.
Gumbi explains that the market is no doubt a buyers’ market and the bank is open for business for would-be buyers who can prove affordability on application for home loans.
As for sellers, he says if ideally, it would be best to hold on to the property until the market turns as many sellers are getting less than their asking prices.
However, he notes that the rental market for those who can afford to buy a house is buoyant as many sellers opt to rent instead of buying again immediately.
The report reveals that consumer creditworthiness continues to show improvement with the number of summonses issued for debt and the number of civil judgements recorded for debt continuing their downward trend in June (recording declines of 18.3 percent y/y and 29.6 percent y/y respectively) and the number of insolvencies by individuals and partnerships declined by 31.9 percent y/y in June.
Homeowners can brace themselves for increases in the costs of home ownership (in some cases in the double digits). Eskom’s electricity tariffs have risen by an additional 25.8 percent in 2011 and are set to rise 25.9 percent in 2012, with the higher tariffs expected to be passed on to the consumer.
Municipal services such as water, refuse removal and sanitation have all incorporated budgetary increases in 2011 in major metropolitan cities across South Africa, says Gumbi.
Standard Bank anticipates an increase in interest rates in the third quarter of 2012 from its earlier expectation of the first quarter of 2012. The bank says it expects 200 basis points by the end of 2013.
“Standard Bank’s median house growth is forecast to rein in low single digits in nominal terms for the remainder of 2011 into 2012,” he says.
Estate agents say that buyers with money can take advantage of distressed properties, which are expected to continue to come on stream for the next five years.
According to RE/MAX of Southern Africa, positive trends in the real estate market are by no means an indication that distressed properties are a thing of the past.
Since January this year, the agency has listed approximately 600 distressed properties, of which 10 percent were in the Cape, 20 percent in KwaZulu-Natal with the majority of 70 percent properties located in Gauteng.
Peter Gilmour, chairman of RE/MAX of Southern Africa says of the distressed listed properties in KwaZulu-Natal, more than 40 percent have successfully been sold. These properties spent an average of 48 days on the market and were priced between R250 000 to R2 million.
Grant Gavin, broker/owner of RE/MAX Panache, which operates in the northern suburbs of Durban from Umgeni Park through to Umdloti, says they sold two distressed properties in Glen Hills and Effingham an outlying suburb.
“The properties sold within one week of being listed and this is much quicker than most of the other overpriced homes currently on the market.
He says distressed properties in his areas of operation are either priced under R500 000 or in the R1.5 million price bracket.
“Distressed properties sell so quickly because they are priced right, are generally in good condition and appeal to buyers who also generally have reduced costs when purchasing a property in the banks distressed program,” says Gavin.
Gilmour adds that RE/MAX has achieved 91 percent of the bank’s asking price on the sale of these properties. The anticipated interest rate hikes will greatly influence consumers’ debt-to-disposable-income ratio and therefore their ability to meet their monthly payment obligations. – Denise Mhlanga