Johannesburg - Home sellers who refuse to lower their asking price will struggle to make a sale as debt-ridden South Africans avoid buying new houses, First National Bank's (FNB's) property analytics department said on Monday.
FNB's Third Quarter Residential Property Review reported that the residential property market is flush with homes but struggling to find interested buyers.
"Asking prices are still too high given the weak level of residential demand," said FNB housing specialist John Loos.
He said surveys of estate agents for the review point to an unrealistically priced market.
The report showed the average time on the market is a lengthy 15 weeks and four days, compared to under eight weeks in the heydays of 2005 and 2006.
"There is a lack of realism in the market," said Loos. FNB estimates that 81% of sellers had to lower their asking price to make a sale in the third quarter, compared to 30% in 2004, which recorded the lowest average fall in selling price.
The estimated average drop in asking price was 12% for the third quarter of 2010.
Loos warned that the household sector's lack of interest would result in lower house prices.
"Indications are that the supply of existing property is strong, with high levels of financial stress-related selling. Indications are also that residential demand is currently weakening. That leaves a price decline as seemingly the logical outcome," he said.
According to the FNB House Price Index, the year-on-year (y/y) price increase dropped by almost half. In the third quarter the average house price increased by 7% y/y, down from 11.3% in the previous quarter.
"We retain the expectation of average price decline for 2011 as a whole," said Loos.
According to Loos, high household debt levels are one of the main reasons for weak demand in the residential property sector. Low saving rates make it difficult for South Africans to afford deposits on home loans.
Loos said the positive impact of the more aggressive rate-cutting cycle up until August 2009 is also starting to wear thin.
The report also showed that investment buying will be placed on the back burner due to home owners' low rental yields.
The Rode Review released in September reported the average gross rental yield is 7.8%.
"Where operating or maintenance costs would still need to be covered, this would hardly appear enticing on a large scale to a financially stretched household sector," said Loos.
- Fin24