Absa 4th Quarter Housing Review
Absa - South Africa
The residential property market
The residential property market is expected to continue to reflect conditions and developments with regard to the macroeconomy and the household sector.
Based on trends in home values up to the third quarter of 2011, and future prospects for the economy and household finances, nominal price growth in the middle segment of the market is forecast to be well within single
digits for the full year of 2011, projected at between 2% and 2,5%. In real terms, house prices are expected to continue to decline in the rest of the year and in 2012 on the back of rising headline consumer price inflation, which is forecast to marginally breach the 6% level by the end of the year and for part of next year.
The performance of the economy, but especially labour market conditions; a rising trend in inflation, negatively impacting consumers’ real disposable income; low but stable interest rates since November 2010; the level of consumer confidence; a large number of credit-active consumers still having impaired credit records; the extent of household debt; and the effect of the National Credit Act and banks’ lending criteria, are some of the main factors affecting consumers’ demand for, access to and affordability of credit. Against this background, year-on-year growth in household credit extension, including mortgage finance, is forecast to remain relatively low towards the end of the year and into 2012.
FNB 3rd Quarter Buy-to-let and rental markets
FNB - South Africa
CONCLUSION – BUY-TO-LET BUYING LOOKS SET TO REMAIN WEAK IN NEAR TERM
In the absence of any significant capital growth in the residential market, buy-to-let investment probably takes place largely for “sound reasons” these days, i.e. based on income stream prospects.
While we have previously expected these to improve significantly due to an expectation that the rental market would strengthen significantly, last year’s rental inflation promise appears to have fizzled out for the time being. This may well be due to increased financial pressure on tenants as a group due to a weak economy, along with significant rises in key cost of living items such as transport, electricity and food costs.
Therefore, in the near term it would not be surprising to see many aspirant buy-to-let investors remaining on the sidelines for the time being, and the buy-to-let buyers as a percentage of total home buying remaining at the current
relatively low levels.
FNB 3rd Quarter Segment Price Review
FNB - South Africa
Since 2007/08, the two measures of home affordability have improved significantly. However, financial pressures on the household sector are still significant from other sources. These include sharp municipal rates and tariff increases related to housing, but also big increases in petrol and food costs.
Rising consumer price pressures, and an economy not strongly supportive of household income growth, means that the search for affordability in the housing market is probably still strongly on the go.
As a result, we have previously mentioned that more affordable areas are generally outperforming higher priced areas in terms of house price growth. Split by property type, too, we see evidence of the affordability search. The Full Title segment is outperforming the Sectional Title segment in terms of price growth, with each sub-segment of the Full Title market (split by room number) still being cheaper than the comparable sub-segment of the Sectional Title market. Split by size of home, too, we see the smaller-sized more affordable segment mildly outperforming the larger-sized unites on average.
This “affordability drive” is expected to continue for the foreseeable future as households continue to repair their somewhat fragile balance sheets.
FNB October 2011 House Price Index
FNB - South Africa
Therefore, we are of the opinion that the combination of a weak market balance, signs that the economy will carry on at mediocre growth rates at best in the near term, and significant consumer price inflation pressure on
incomes, will keep house price growth under pressure, and that further real price decline will be forthcoming. In nominal terms, too, there exists the possibility of some negative year-on-year house price growth in 2012 .
Ongoing pressure on household purchasing power implies:
That the more affordable segments of the housing market are expected to outperform the higher priced segments.
High transport costs due to high fuel prices can support demand in close proximity to key business nodes, and….
Smaller homes are expected to be more popular as they contribute to reduced running costs.
FNB Property Barometer_October 2011 House Price Index
Analysts challenge property pundit's call not to buy
Moneyweb - South Africa
Say it is a buyers’ market.
JOHANNESBURG – Interest rates are low, property is in abundance and distressed homes are going for a song, so if you are in the market, now is the time to buy. At least that is the view of realtor Engel & Völker and property specialists Lightstone.
In fact, CEO of Engel & Völker, Craig Hutchinson says with interest rates at the lowest it has been in years and with an abundance of property to choose from, now is the perfect time to buy. “It is very important to enter the property market as soon as possible as property should form part of any balanced financial plan and the sooner you own rather than rent, the sooner you start enjoying the capital appreciation which property gives,” Hutchinson said.
He maintains that property is the one asset that remains one of the best inflation beating vehicles over the long term.
In October 2011 the Rode Report for the third quarter advised first time entrants to rather rent for the next four to five years, rather than buy, adding not to expect any capital growth in the residential sector during this period.
Hutchinson says it is expected that there will be a month-to-month decline in the seasonally adjusted house price index in the near team which is good news for new entrants or those who are upgrading.