‘Buy-renovate-sell investments fall 50%’
Business Report - South Africa
Prior to the economic downturn, purchasing property to renovate and sell was an upward trend. In the property boom, people with no experience in developments would purchase a property, renovate or redevelop and sell for a sizeable profit.
Many times a profit was achieved not because of the superior quality of work but mainly because these developers caught the residential boom at the right time. However, the market changed quickly and the encumbering effects of the economic downturn directly impacted investor sentiment and bank lending requirements. These factors, together with the increase in building costs, have led to a sharp decline in “buy-renovate-sell” investors.
Investors wanting to purchase property to renovate and sell are finding it increasingly challenging to secure the required funding as a result of the cautious approach adopted by banks in both the local and global economic sectors.
Business Report
FNB Property Barometer - June 2011
FNB - South Africa
Outlook
The SARB announced the last of the two 2010 rate cut in November, more than 7 months ago. Effects of these interest rate reductions are starting to wear thin as the household sector gets used to the lower interest rate environment. Unfortunately, current low interest rates alone are not enough to sustain positive house price growth.
Rising inflation levels is expected to be curbed by an interest rate hiking cycle expected to start towards the end of 2011.
Interest rate expectations on the back of rising inflation, coupled with a weak market in terms of demand and supply balance increases the likelihood of another round of nominal house price decline early next year.
FNB Property Barometer - June 2011
ABSA House Price Index - June 2011
ABSA - South Africa
Moderate growth in home values
June 2011 saw moderate nominal year-on-year growth in home values in the middle segment of the South African housing market, after some price deflation occurred in recent months. This is according to the latest trends in the Absa house price indices, which are based on the average value of homes in the small, medium-sized and large categories of housing for which the bank approved mortgage finance (see explanatory notes).
Nominal price growth of just more than 1% was recorded on a year-on-year (y/y) basis in middle-segment housing in June this year, after prices were declining in the first five months of the year compared with the corresponding period in 2010. Base effects are believed to have played a role in the moderate June 2011 year-on-year growth, as price growth was tapering off twelve months ago. In real terms prices dropped by 4,4% y/y in May 2011, based on a consumer price inflation rate of 4,6% y/y in the month.
ABSA June 2011 House Price Index
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