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Cash-strapped home owners scale down

Oct 28 2010 14:47 Leani Wessels

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Johannesburg - Home owners are scaling down to cheaper houses as cost pressures affect more people in all segments, Absa's home loans department said on Thursday.

Absa's Housing Review for the fourth quarter of 2010 reported that nominal and real house price growth slowed down in all segments in the third quarter of the year.

"There's a focus on affordable houses across the board," said Absa senior property analyst Jacques du Toit.

Du Toit said the weak economy pressurises people in all income segments, albeit in different ways.

At the lower end of the market there is real pressure on income due to an increase in unemployment, whereas at the top end home owners are under pressure as investment income dropped in the recession.

The result is that everyone is buying down, said Du Toit.

Prices of luxury houses (those valued above R3.1m and up to R11.5m) increased by 3.1% to R4.5m. When adjusted for inflation, these prices dropped by 0.5% year-on-year (y/y) in the third quarter.

According to the report, affordable houses (40m² to 79m², priced at up to R430 000) increased in price by 3.2% to R301 500.
 
The middle segment (houses priced between R430 000 up to R3.1m) was the only segment to show real price growth.
 
However, it was only the smaller- and medium-sized houses in this segment that reported price inflation.

Prices of houses sized 80m² to 140m² increased by 16.7% y/y in the third quarter.

Large houses in this segment (221m² to 400m²) experienced a real drop of 1.9% in value.

Du Toit said home buyers were considering several factors in additon to the affordability of a house. "Property taxes, levies and increases in electricity tariffs are all starting to play a bigger role in people’s decisions to buy smaller, more affordable properties," he said.

The report concurs with First National Bank's (FNB's) home loans House Price Index released earlier this week, which said that house price growth declined during the third quarter due largely to high levels of household indebtedness.

The debt-to-disposable income ratio is still high at 78.2% in the second quarter, while the net savings rate is -0.2% of disposable income, the South African Reserve Bank reported in June.

High debt levels constrain the household sector's ability to grow its borrowing, FNB said.

 - Fin24 

property market  |  house prices
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