FNB’s latest six month property market outlook is, in a nutshell, rather dismal. At a recent media briefing held at FNB’s Head Office in Fairlands, ‘anaemic’, ‘consolidate’, ‘negative’ and ‘downscale’ punctuated the comments used to describe current and forthcoming property market trends.
Speaking at the briefing, Jan Kleynhans, CEO of FNB Home Loans, said that FNB’s June House Price Index presented a “sobering view of the once bustling South African residential property market and that sellers should look at pricing their homes more realistically. ”According to Kleynhans, high debt to disposable income levels, depressed house price growth, diminished credit growth, the high costs of servicing property and increasing expenses stemming from the transport, education, municipal and electricity sectors are all contributing to the current lacklustre property market scenario.
“The heady days of 2004 and 2005 are long since gone,” remarked Kleynhns. “A few years ago, many buying decisions were made with the heart rather than with a website and calculator and this was a compelling way to buy property. Market values were climbing steadily and even if you overpaid a little to live in your dream house, the sentiment was that the market would catch up with you. Suffice to say this mindset is no longer valid.”
Kleynhans adds that it is quite likely that the current subdued conditions may continue through to the early part of 2012 and could even play out longer should interest rates start climbing. Possible rates increases, job losses, surplus property stock, construction industry woes, general global economic jitters and unrealistic property price expectations could further undermine property market prospects going forward.
But it’s not all bad news. Downscaling and a distinct shift towards high density living has manifested as a result of current prevailing conditions which, notes Kleynhans, “is creating opportunities for both first time and investment buyers.” He adds that the increase in home owners’ costs has sharpened the focus on affordable, high density living spaces and developers are catering to this trend. It is envisaged that this activity will intensify over the next six months.
That said, Kleynhans advocates prudence in terms of buy-to-let purchases. “Buy-to-let purchases can no longer be viewed as a ‘get rich quick’ investment mechanism. Although rental demand is still fairly robust, the return on investment ratios of such properties depends entirely on the property and area and needs to be considered a long term investment.” The upper end of the market has not escaped unscathed he added. Lifestyle estates in general are feeling the pinch, demand for property in the R3m to R4m bracket is “all but dead” and refinancing is also occurring in this segment. Somewhat bizarrely though, activity in the R20m plus property bracket is higher than it has been in years.
On a lighter note, Kleynhans explains that buyers and sellers are generally behaving more responsibly from a credit perspective and defaults are decreasing. This can be directly attributed to the much bemoaned National Credit Act, which, although initially onerous, has done much to set South Africa on a more sustainable financial path.
In response to the current scenario, FNB has taken a pro-active stance through the introduction of its Quick Sell and Property Leader services. Property Leader offers would-be buyers in-depth information about the market value of their new home and prospects for capital growth in their new suburb free of charge. FNB Quick Sell is a low cost platform which allows distressed property owners to avoid legal action by selling their properties. Should there be a shortfall between the price achieved on Quick Sell and the loan amount, FNB will fund the difference at a 0% interest rate for ten years.
Concludes Kleynhans: “A sound property purchase at a keen price in 2011 will remain a good investment and as unpleasant as current conditions are, we should see this period as one in which a foundation for future growth is being built. As house prices have decreased at -2.5% in real terms and net disposable income has increased at 5.3% in real terms, we can expect better growth in the future.”