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Johannesburg - There is no longer getting away from it: SA house prices are now firmly in negative growth territory. Whether house prices are actually falling or whether growth is merely slowing has in recent weeks been a hotly debated topic, with many industry players insisting that property values are still intact.
But latest Standard Bank residential property gauge doesn't support this view. The index shows that property values have already taken a dive with median house prices falling 11.3% in June (y-o-y). That is the fourth consecutive month that prices have contracted and brings SA's median house price to R550 000, down from R620 000 a year ago.
Standard Bank data confirms that housing market conditions have rapidly deteriorated in recent months. New mortgage loans and re-advances granted, which is used as a proxy for housing demand, dropped by 25% in March 2008 (y-o-y).
Standard Bank property economist Sizwe Nxedlana says the last outright decline of this level was seen in the late Nineties. "Declines in the demand for property of this magnitude are not inconsistent with national house price deflation."
Nxedlana concedes that data on house prices and mortgage advances could be somewhat distorted by the introduction of the NCA in June 2007. However, he says the broad trend within the SA residential property market is in line with the "evolving and intensifying headwinds" currently confronting the SA consumer.
Negative equity
Standard Bank data is supported by turnover figures from real estate groups. Seeff Properties chairperson Samuel Seeff estimates that sales volumes across SA are down by as much as 40% from January to June (y-o-y). "And there's no doubt that prices are starting to contract in some areas," says Seeff.
Jawitz Properties MD Herschel Jawitz puts it another way: "If you bought a property two to three years ago with a 100% bond plus costs, chances are that you're either already in a negative equity position (when mortgage debt exceeds market value) or very close to it. Property owners who bought two years ago and are now forced to sell will take a knock."
Most industry commentators don't expect a recovery in housing activity before end 2009 or early 2010. More so, if interest rates are hiked yet again in August and October.
Nxedlana expects rates to be hiked by another 50 basis points in August, which will undoubtedly put further strain on already cash-strapped consumers.
Nxedlana notes that consumers' disposable income is being rapidly eroded not only by higher debt repayments but also by surging food, fuel and electricity prices. Says Nxedlana: "The outlook for the residential market remains bleak, as the country's inflation dilemma continues to intensify."
- Fin24.com