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Residential property defies weak economy

Jan 14 2014 12:50
Johannesburg - House price growth not far from 5% can be expected in SA's residential property market, according to the latest FNB estate agent survey for the fourth quarter of 2013.

"This would be not far behind our expectations for consumer price inflation," according to John Loos, household and property sector strategist at FNB Home Loans.

Activity levels in SA's residential property market are in the “stable” range, according to the survey.

The broad trend since early 2012 of a comfortable and gradually improving residential property market is continuing.

The estate agents surveyed perceived the balance between demand and supply to be gradually improving, stock constraints to be mounting and a gradually improving price realism.

"However, they do not yet point to a market that could be classified as 'booming or irrational' and they do not appear to anticipate such a market in the near term," said Loos.

"The fourth quarter of 2013 survey points to a resumption of residential activity improvement after the previous quarter’s slight decline, as the residential market seemingly defies (a) very weak economy."

The survey shows that the mild seasonally-adjusted decline in the third quarter of 2013 did not yet signal a trend change.

Along with the rise in residential activity levels over the past two years, which reflects a rise in residential demand, has come a rise in “stock constraints” experienced by certain estate agents.

These stock constraints are also reflective of building activity which has remained relatively weak in recent years.

Price realism

One indicator of where the market is in terms of seller pricing realism, or otherwise put the balance between demand and supply at prevailing price levels, is the estimated average time that properties remain on the market prior to sale.

From a third-quarter estimate of 14 weeks and five days in the previous quarter, the estimated average time on the market in the fourth-quarter survey rose very slightly to 15 weeks and one day.

However, the smoothed trend line continues to point to a broadly declining trend in the average time on the market ever since a high of 19 weeks and one day at the beginning of 2011.

Nevertheless, at around 15 weeks, which remains a lengthy time compared to the levels of 2004/5, this estimate still does not point to a “buying frenzy” or booming market.

Things still seem by and large “rational and calm”, according to Loos.

Where owners had to drop their price to make a sale, the average percentage asking price drop required remained at -9% in the fourth quarter survey, the same as in the third quarter, but is noticeably less than estimates of -13% at a stage of 2011.

The survey also indicates the percentage of agents believing that income levels have kept up with prices declined from 46% to 40% over the last two quarters of 2013.

"It is too early to ascertain whether the decline in those perceiving income levels to have kept up with prices in the fourth quarter survey is the start of a deteriorating affordability trend," said Loos.

"However, given no further interest rate cuts in 2013, weak economic and wage bill growth and our FNB House Price Index showing accelerating growth late last year, it is entirely possible that we may be entering a period of deteriorating affordability, after an improving trend dating back to around 2009."

Near term outlook

Agent confidence regarding near term prospects remains noticeably above the low points  of 2007/8 and 2011, but still not “overly strong”.

In the fourth-quarter survey, 34% of agents expected activity to increase in the next three months, down from 61% in the previous quarter, while 48% expected it to stay the same and only 18% expected a decrease in activity.

fnb  |  john loos  |  property


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