Garth Theunissen - Finweek
Johannesburg - The combined effect of the National Credit Act (NCA), rising interest rates, a slowing economy and a lack of further transfer duty relief are conspiring to weaken the local property market.
That's according to the latest First National Bank (FNB) property barometer, a survey of the 150 most active real-estate agencies in South Africa's metropolitan areas.
"This year is the bad year and is possibly going to be the worst of the decade in the residential property market," said FNB property economist John Loos.
"Four evil forces - namely the NCA, rising interest rates, a slowing local and global economy and a lack of further transfer duty relief - are conspiring to undermine the housing market."
Results from the FNB property barometer for the second quarter of 2007 show that property confidence indicator levels have dropped from a high of 7.7 index points in the first quarter of 2004 to 5.8 index points in the first quarter of 2007.
Credit Act biggest culprit
Moreover, confidence levels have fallen to just 4.96 index points since the implementation of the NCA on June 1 2007.
The NCA puts more onerous obligations on lenders to ensure that borrowers are able to repay debt.
Jan Kleynhans, CEO of FNB Home Loans, said the decline in the residential property market, which is at the lowest point since the inception of the FNB property barometer, was largely due to the implementation of the NCA.
"The slowdown is predominantly as a result of the NCA and secondary to the cumulative effect of interest rate hikes over the past year, which are now being felt by consumers," said Kleynhans.
FNB's property barometer shows that 43% of retail industry professionals in SA claim that home loan applicants are struggling to qualify for loans due to the NCA.
This is particularly noticeable in the lower priced segment of the market where 67% of real estate professionals claim that borrowers are experiencing difficulties in qualifying for a home loan.
First time buyers struggle
The proportion of first time buyers in the market has also decreased to just 16% in the two months since the implementation of the NCA, compared with a high of 32% in the second quarter of 2005.
The average length of time taken to sell a property has increased to 10 weeks, double the amount of time taken in the final quarter of 2004.
The demand for buy-to-let properties has decreased to just 12% compared with 28% in the first quarter of 2004 while three out of four residential properties are now being sold at less than the initial asking price compared with less than one in three in the first quarter of 2005.
Loos said it was likely that the weakening cycle in the residential property market would continue until the second half of next year.
"The cycle is in a downward trend and it will stay that way until the end of the first half of 2008," said Loos. "With the risk of another interest rate hike to come and the economy in a bit of a lull I don't see the trend reversing in the near term."
Rate hike inevitable
Loos? comments come on the same day that Standard Bank Global Market Research announced that a rate hike was inevitable at this week's SA Reserve Bank monetary policy committee meeting.
"There is little doubt that the SARB will increase interest rates by 50 basis points at this week's MPC meeting," said Adriaan du Toit, a credit analyst at Standard Bank.
Economists at all of SA's so-called "Big Four" banks expect the SA Reserve Bank to increase rates by another 50-basis points, taking the prime lending rate to 13.5%.
This will bring to six the amount of 50-basis point hikes since the Reserve Bank began hiking rates on June 13 2006.
The Reserve Bank will announce its decision on Thursday.
- Fin24