That’s according to Ewald Kellerman, property analyst at FNB Homeloans and guest speaker at Harcourts’ Power Rally series, which took place around the country recently.
Commenting on current trends within the South African property market, Kellerman said house prices, which had shown year-on-year growth of 5% for the 12 month period September 2011 to September 2012, were rising more or less in line with inflation, which was recorded at 5% in August this year. This, along with improving selling times in the major metropolitan areas, improving affordability on the back of salary increases and an increase in bond grants by the banks, indicated that the market was recovering, albeit mildly.
“There’s a better balance between buyers and sellers,” he said, adding that in some areas, agents were reporting stock constraints for the first time in years. He also pointed out that the high cost of building material and labour, along with limited growth in property prices, had seen very little building activity in the last few years. “The building industry is under huge pressure as a result of reduced profitability,” he commented, adding that the boom period had seen a large amount of new stock being offloaded on to the market, to the point that there was an over-supply in some areas. This was now being corrected, which he said was good news in terms of correcting the balance between supply and demand.
Another market positive, according to Kellerman, was that first time buyers were coming into the market in growing numbers. This he ascribed to their relative lack of debt, which gave them a degree of financial flexibility. “First time home buyers don’t have the high debt levels of many who bought at a premium a few years ago. This, coupled with a record low interest rate, makes the market a more positive place for first time buyers, whose numbers as a percentage of total buying, according to FNB, rose from 20% in the second quarter of 2012 to 26 percent in the third quarter,” he said. However, he warned, the residential market still appeared to be unrealistically priced as reflected in the national average selling time, which at nearly four months, was not yet healthy.
This, along with a household indebtedness level of 76% of disposable income, imposed serious constraints on market activity. “Until consumer debt-to-income levels drop significantly, which is likely to take a number of years, there will not be another property boom in South Africa,” said Kellerman.
To this end, sellers needed to practise pricing realism if they wanted results, said Richard Gray, CEO of Harcourts Real Estate. He agreed with Kellerman that the key to market activity was the willing and able seller, whose numbers were down as a result of high debt levels.
“Generally speaking, the country is sitting in a low interest, high debt environment. This is being felt in the property sector, where today 84 percent of sellers are required to drop their asking price, compared with 2004 when 30% of properties sold for less than asking price,” he said. “This, on top of the fact that the country has a zero percent savings rate on disposable income, means we have an improving market rather than a healthy one at this stage.”
Other indications that the market was improving, Gray pointed out, were a slow reduction in household debt over the past 18 months and quicker selling times for properties that were listed at realistic selling prices. “The low interest rates, along with stock shortages in certain areas, are bringing a sense of balance to the market,” he concluded. “The message therefore is that we’re experiencing a slowly improving market with household debt being the biggest constraint to activity.”