SA house market on edge

Johannesburg - The South African housing market's short-term salvation is the shot in the arm lower interest rates can provide.

Although the housing market is groaning under the impact of the National Credit Act and banks' stricter lending criteria, interest-rate cuts could potentially kick-start the market later.

Should these not occur, the South African housing market could find itself in a similar position to that of overseas markets, says John Loos, property analyst at First National Bank's home loan division.

The situations in the British and the South African housing markets are pretty much alike, where both are reeling under strict credit lending criteria and rising unemployment. He says the major difference here is that our interest rates have room to fall, and stimulate our housing market somewhat.

In contrast, Britain's firepower has dissipated because its repo rate is at a all-time low of 0.5%, while in SA it is still 10.5%.

At the moment housing prices are falling like stones throughout Britain and the average British home has fallen  34 626 in value, from  194 953 in February last year to  160 327 this February, according to the latest Halifax House Price Index. This represents a 17.7% decline on an annualised basis.

The latest house price indices show that South African house prices fell from 1.3% to 6.9% on an annual basis. Although Loos expects that prices could drop by up to 10% this year, there is the prospect of the market picking up early next year as the positive effects of lower interest rates take effect.

But, he says, the stimulus of lower interest rates has limitations. South Africa's economy is as exposed to global conditions as other markets are.

"If lower interest rates fail to turn the housing market around early next year, things could get as bad as they have offshore." Especially if global economic conditions continue to deteriorate.

- Sake24.com

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