When Will the Property Market Improve?

Private Property South Africa
Private Property Reporter

Many sellers and estate agents are asking themselves when will the property market start improving or at least get better ? The reality is the demand for property at the moment is currently very low, and if there are no buyers and a large supply of homes for sale, prices will only decline. Thats what we are currently seeing, sellers are clinging onto boom time expectations and are not pricing their homes correctly based on current market conditions. The question then asked is why is the demand for property so low? To answer this question we need to go back and look at what created the boom. Back in 2004 the South African Reserve Bank dropped interest rates by a massive 5.5%, thereby increasing the affordability of average South Africans to buy houses. At the time prime was 11.5%. Add in that the local banks and mortgage originators where hell bent on getting as much of the mortgage loan action as possible, we thereby had a situation whereby banks where lending to anyone who had half a decent credit record and would sweeten the deal by offering as much as 2% below prime to those who qualified. Effectively a buyer could have walked away with a home loan at 9.5%. The banks where so keen to lend against property because at the time property growth as at a crazy 43% per year..! How could they lose? House prices where soaring and this allowed homeowners to refinance their homes and remodel or spend the cash on furniture, holidays you name it. But all good things must come to an end. The government introduced the National Credit Act (NCA) to make the banks more accountable to whom they lent money to, in addition the reserve bank started raising interest rates in mid 2006 due to fears that house prices and inflation where spiralling out of control. They hiked rates up from a low of 10.5% to a peak of 15.5% in 2008. This process slowly put the brakes on the house buying frenzy we had just witnessed. Currently the reserve bank have dropped interest rates again by 5% with prime as of Aug 09 now back down to 10.5%. However where things are now different is that we are in a global recession and our banks are having difficult times getting capital to lend their clients. As a result the banks have initiated strict lending criteria with them requiring as much as 30% deposits from buyers. Add in transfer duty and fees and a potential buyer may need as much as a 40% down payment to purchase your property. These policies have put massive pressure on buyers and as a result the pool of buyers who have this sort of money has dried up, resulting in few buyers and many sellers. The net result is falling property prices. The other problem faced is that given we are in a recession, is that people are losing jobs, so many middle class South Africans are just trying to hang onto their jobs and pay down on debt and are not looking towards taking on any new big ticket purchases such as property. Even with low interest rates the demand for property is low and will remain low up until such time as all the banks start lending again with 100% bonds to buyers we can expect prices to remain depressed until at least end of 2010 or early 2011. So any potential seller would be advised to sell now if they are under financial pressure because demand and prices are not expected to get better anytime soon. If you are in a position to ride the storm one would do best in holding onto your property until 2011/12 before selling. When prices are set to start improving. Article originally published by Brennan Carey on the Privateproperty.co.za blog.Click here to discuss this article on the Property Tribe Forums

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