The beginning of a new year always elicits predictions as to how the property market will perform. The advent of 2013 proved no different with various experts providing mixed opinions on the matter.
For instance, Absa’s property analyst Jacques du Toit has predicted that real house prices will decline for a third consecutive year in 2013. Says Du Toit: “Nominal house price growth in the middle segment of the market slowed down to less than one percent in 2012 from almost two percent in 2011. In real terms, house prices deflated for the second consecutive year. Further real house price deflation is projected for 2013 on the back of expected low nominal price growth and headline consumer price inflation forecast to average around six percent this year.”
According to Du Toit, the average nominal price of a new house increased 5.1 percent to approximately R1, 591, 600 in 2012. This came to real price deflation of 0.5 percent in the past year after adjustment for inflation. The average nominal price of an existing house was about R1, 037, 800 in 2012 (up by a marginal 0, 3 percent in nominal terms but down by a real 5.1 percent from 2011. In other words, this made it R553, 800 or 34. 8 percent cheaper to buy an existing house than to build a new one in 2012.
Adds Du Toit: “Based on current trends and prospects for the economy and the household sector, the outlook for the residential market this year remains subdued. Factors such as the performance of the economy, growth in employment and income, living costs, interest rates, consumers’ credit-risk profiles, banks’ risk appetite and lending criteria and property running costs are set to remain important with regard to the affordability of property.
“These factors, in conjunction with the aspect of consumer confidence will determine the showing of the residential property market this year which will be reflected in demand and supply conditions, market activity, buying trends, transaction volumes and the demand for mortgage finance.”
With Du Toit’s comments in mind, it is interesting to note that Bill Rawson, Chairman of the Rawson Property Group points out that South Africa’s residential property market has performed significantly better than those of 85 percent of the world’s developed countries. According to Rawson, Only Hong Kong and Austria have performed better in recent times.
In terms of home loans, mortgage originator BetterBond says the Reserve Bank’s decision to keep interest rates unchanged at their current 40 year lows is “good news” as it affords homebuyers the opportunity to qualify more easily for bonds. That said, BetterbBond explains that while more bonds are currently being granted, the number of 100 percent home loans granted is falling.
Commenting on the general economic outlook, Dr Adrian Saville, CIO of Cannon Asset Managers believes that by far the greatest near-term effect on South Africa’s economic progress will be the performance of advanced economies such as Japan, the U.S, the U.K and Western Europe to which South Africa’s economy is closely tied.
Says Saville: “The factors that ail the advanced world in 2013 are the same as 2007 and are structural in nature. Consequently, the advanced world essentially has achieved zero economic growth over the past five years. Unfortunately, the policies that are in place in these economies do not address structural issues such as demographic decline and massive indebtedness but rather are cyclical in their treatment, using aggressive fiscal and monetary policies to treat material structural weaknesses. These policies have not worked since 2007 and are unlikely to suddenly start working in 2013. As such, I expect another year of muted economic growth in the advanced world.”
Locally, social disruption, entrenched unemployment, a dwindling manufacturing sector and policy uncertainty are further undermining South Africa’s near term economic outlook says Saville.
In terms of South Africa’s non-residential property sector, Saville believes that South Africa’s listed commercial, industrial and retail property prices are “fair” and will enjoy modest support from low but positive economic growth, modest price inflation and stable interest rates.
As always it’s difficult to predict with any real certainty what a year will bring. That said, the above certainly provides some interesting food for thought.